2011 M o v i n g B e...

Transcription

2011 M o v i n g B e...
2011 ANNUAL REPORT
Moving Beyond Expectations
LETTER TO STOCKHOLDERS
On December 16, 2011, United Rentals announced a
definitive merger agreement with RSC Holdings, and
completed the transaction on April 30, 2012.
The purchase was a cash-and-stock agreement initially valued
at $18.00 per share, for a total enterprise value of $4.2 billion,
including $2.3 billion of net debt. It was an unprecedented
transaction in our industry and a watershed moment for
United Rentals.
United Rentals is a company that delivers on its promises.
Our performance comes down to that.
Upon closing, we welcomed three independent directors to
our board. Pierre Leroy, James Ozanne and Donald Roof all
previously served as independent directors for RSC. They
will further strengthen one of our company’s greatest assets:
a highly skilled and diverse board working in close
partnership with senior management.
In 2011, our results were both an affirmation of our strengths
and a triumph over market conditions. We pushed through
the decline in construction, and turned strategic positioning
into value creation. Four straight quarters of earnings
improvement culminated in our landmark merger
announcement with RSC Holdings.
Additionally, Howard Clark, Jr., one of our most longstanding
directors, has decided not to stand for re-election next month.
Howard has served on our board since 2004. His wisdom has
been invaluable, particularly through the recent economic
turmoil. We wish Howard the very best and thank him for
his many contributions.
From the earliest days of the cycle, we have said that our
performance is more closely tied to our strategy than to the
economy. Our metrics offered ample proof of that: rental rates
up 6.1%, time utilization at a record 69.1%, and a return on
invested capital that increased year-over-year to 6.7%.
Most important, we drove significantly higher earnings of
$1.38 per diluted share on $2.6 billion of revenues.
Outlook
Our full year adjusted EBITDA was $929 million at an
adjusted margin of 35.6%, an increase of 34.4% and
4.7 percentage points, respectively, from the prior year.
These results reflect a company that is doing things right on
many levels: asset management, capital allocation, customer
service, pricing, efficiency and innovation. In 2011, our
investments in fleet dovetailed with a market shift toward
renting, giving us traction at a critical point in the cycle.
There is no question that the recent recession encouraged
customers to rely more on equipment rental and less on
capital purchases. Once they made that shift, the economic
benefit became apparent. We are tapping into the most rapid
penetration our industry has seen in a long time, and we
expect most of it to stick as conditions improve. While market
penetration benefits the entire industry, our scale and brand
recognition provide United Rentals with the best line-of-sight
to customers.
Our 17% revenue increase was particularly meaningful in
2011 because it tied so strongly to our strategic imperatives.
These are: to capitalize on our scale, drive sustainable
efficiencies in our core business, and maintain a strong capital
structure. For example, we focused on our National Account
business and grew those relationships to 35% of rental
revenues. We also made strategic acquisitions of Venetor
Group, GulfStar Rental Solutions, Ontario Laser Rentals and
Blue Mountain Equipment Rental, primarily to expand our
industrial and specialty rental capacity.
We are at a point in the cycle where the better-run, wellcapitalized rental companies can be expected to outperform
both the environment and the industry as a whole. Equipment
rental is very much about available fleet, and we are
continuing to invest. Over the coming months and years,
non-residential construction activity should drive more
demand than we’ve seen in quite a while. Our plan takes all
of these dynamics into account.
The immediate future also will be a period of intense
integration for us. We are creating a best-in-class equipment
rental company of historic proportions. We expect the payoffs
to be substantial: accretive to cash EPS in the first full year,
more than $200 million in cost synergies by year two, and
an immeasurable benefit to customer service.
These are exciting prospects, but they should not obscure
what is most important about United Rentals – the caliber
of our leadership team and employees. Had the merger not
happened, we would still deliver more than a billion dollars
of EBITDA in 2012, well within the five-year timeframe we
projected.
Our goals are larger now to match our combined operations,
but they still fit comfortably within our strategy. We look
forward to succeeding on an even greater scale.
May 7, 2012
Michael J. Kneeland
Chief Executive Officer
Jenne K. Britell
Chairman of the Board
TOTA L R E T U R N TO S TO C K H O L D E R S
The following tables and graph compare the cumulative total return of United Rentals common stock with the cumulative total
returns of the Standard & Poor’s 500 Index (“S&P 500 Index”) and an industry peer group index comprised of publicly traded
companies participating in the construction and distribution industries (“Peer Group 2011 Index”). The industry peer group
comprised of publicly traded companies participating in the equipment rental industry used in 2010 (“Peer Group 2010 Index”) is
also included for comparative purposes. We changed the members of our peer group index for 2011 to parallel the group of publicly
traded companies currently used by our Compensation Committee for benchmarking the total compensation package of our chief
executive officer and our chief financial officer. We also believe that the new peer group represents a more relevant group of
comparably sized companies in the broader industry in which United Rentals participates. The tables and graph assume that $100
was invested on December 31, 2006, in shares of our common stock, stocks comprising the S&P 500 Index, stocks comprising the
Peer Group 2010 Index and stocks comprising the Peer Group 2011 Index, and the reinvestment of any dividends. The returns of
each company within each of the S&P 500 Index, the Peer Group 2010 Index and the Peer Group 2011 Index has been weighted
annually for its respective stock market capitalization.
TOTAL CUMULATIVE RETURN (includes reinvestment of dividends)
ANNUAL RETURN PERCENTAGE
Years Ending
Company Name / Index
Dec07
Dec08
Dec09
Dec10
Dec11
United Rentals, Inc.
S&P 500 Index
Peer Group 2011 Index
Peer Group 2010 Index
-27.80
5.49
30.14
32.13
-50.33
-37.00
-38.38
-34.18
7.57
26.46
21.91
13.77
131.91
15.06
29.31
27.67
29.89
2.11
19.33
12.07
INDEXED RETURNS
Years Ending
Company Name / Index
United Rentals, Inc.
S&P 500 Index
Peer Group 2011 Index
Peer Group 2010 Index
Peer Group 2011 Index
Base Period
Dec06
Dec07
Dec08
Dec09
Dec10
Dec11
100
100
100
100
72.20
105.49
130.14
132.13
35.86
66.46
80.20
86.96
38.58
84.05
97.77
98.94
89.46
96.71
126.43
126.31
116.20
98.76
149.60
141.56
Aircastle Limited
Applied Industrial Technologies, Inc.
Avis Budget Group, Inc.
Fastenal Company
Foster Wheeler AG (formerly Foster Wheeler Ltd.)
GATX Corporation
Peer Group 2010 Index
HARSCO Corporation
Quanta Services, Inc.
Rent-A-Center, Inc.
RSC Holdings Inc. (included from 5/23/07, when it began trading)
Ryder System, Inc.
W.W. Grainger, Inc.
AECOM Technology Corporation (included from 5/10/07)
Applied Industrial Technologies, Inc.
BlueLinx Holdings Inc.
EMCOR Group, Inc.
Fastenal Company
Foster Wheeler AG (formerly Foster Wheeler Ltd.)
Granite Construction Incorporated
Quanta Services, Inc.
RSC Holdings Inc. (included from 5/23/07)
Rush Enterprises, Inc.
The Shaw Group Inc.
Tutor Perini Corporation
Wesco International, Inc.
W.W. Grainger, Inc.
n
United Rentals, Inc.
l
S&P 500 Index
s Peer Group 2011 Index
X Peer Group 2010 Index
$200
$150
$100
$50
$0
12/31/06
12/31/07
12/31/08
12/31/09
12/31/10
12/31/11
The comparisons in the graph and table above are not intended to forecast or be indicative of future performance of our common stock, either of the indices or
any of the companies comprising them. Data source: Standard & Poor’s Compustat.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011
Commission File Number 1-14387
United
Rentals, Inc.
Commission File Number 1-13663
United Rentals (North America), Inc.
(Exact Names of Registrants as Specified in Their Charters)
Delaware
Delaware
06-1522496
06-1493538
(States of Incorporation)
(I.R.S. Employer Identification Nos.)
Five Greenwich Office Park,
Greenwich, Connecticut
06831
(Address of Principal Executive Offices)
(Zip Code)
Registrants’ Telephone Number, Including Area Code: (203) 622-3131
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on
Which Registered
Common Stock, $.01 par value, of United Rentals, Inc.
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes Í No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ‘ No Í
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes Í No ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes Í No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. Í
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer Í
Accelerated Filer ‘
Non-Accelerated Filer ‘
Smaller Reporting Company ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No Í
As of June 30, 2011 there were 62,607,743 shares of United Rentals, Inc. common stock outstanding. The aggregate market
value of common stock held by non-affiliates (defined as other than directors, executive officers and 10 percent beneficial owners)
at June 30, 2011 was approximately $1.38 billion, calculated by using the closing price of the common stock on such date on the
New York Stock Exchange of $25.40.
As of January 23, 2012, there were 62,909,022 shares of United Rentals, Inc. common stock outstanding. There is no market
for the common stock of United Rentals (North America), Inc., all outstanding shares of which are owned by United Rentals, Inc.
This Form 10-K is separately filed by (i) United Rentals, Inc. and (ii) United Rentals (North America), Inc. (which is a wholly
owned subsidiary of United Rentals, Inc.). United Rentals (North America), Inc. meets the conditions set forth in General
Instruction (I)(1)(a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format permitted by such
instruction.
Documents incorporated by reference: Portions of United Rentals, Inc.’s Proxy Statement related to the 2012 Annual Meeting
of Stockholders, which is expected to be filed with the Securities and Exchange Commission on or before April 27, 2012, are
incorporated by reference into Part III of this annual report.
FORM 10-K REPORT INDEX
10-K Part
and Item No.
Page No.
PART I
Item 1
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Item 1A
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
Item 1B
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
Item 2
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23
Item 3
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
Item 4
(Removed and Reserved) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
Item 6
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27
Item 7A
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . .
45
Item 8
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
92
Item 9A
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
92
Item 9B
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
94
Item 10
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . .
95
Item 11
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95
Item 13
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . .
95
Item 14
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96
PART II
Item 5
PART III
PART IV
Item 15
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains forward-looking statements within the meaning of the “safe
harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements can be identified by
the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “seek,” “on-track,”
“plan,” “project,” “forecast,” “intend” or “anticipate,” or the negative thereof or comparable terminology, or by
discussions of strategy or outlook. You are cautioned that our business and operations are subject to a variety of
risks and uncertainties, many of which are beyond our control, and, consequently, our actual results may differ
materially from those projected.
Factors that could cause actual results to differ materially from those projected include, but are not limited
to, the following:
•
we and/or RSC Holdings, Inc. (“RSC”) may be unable to obtain stockholder or regulatory approvals
required in connection with our proposed acquisition of RSC, or we may be required to accept
conditions that could reduce the anticipated benefits of the merger as a condition to obtaining regulatory
approvals;
•
the length of time necessary to consummate the proposed acquisition of RSC may be longer than
anticipated, and our business and/or RSC’s business may suffer as a result of uncertainty surrounding
the proposed transaction;
•
the possibility that RSC or other companies that we have acquired or may acquire could have
undiscovered liabilities may strain our management capabilities or may be difficult to integrate;
•
our highly leveraged capital structure, which will increase as a result of the proposed acquisition of
RSC, requires us to use a substantial portion of our cash flow for debt service and can constrain our
flexibility in responding to unanticipated or adverse business conditions;
•
a change in the pace of the recovery in our end markets which began late in the first quarter of 2010.
Our business is cyclical and highly sensitive to North American construction and industrial activities.
Although we have recently experienced an upturn in rental activity, there is no certainty this trend will
continue. If the pace of the recovery slows or construction activity declines, our revenues and, because
many of our costs are fixed, our profitability, may be adversely affected;
•
inability to benefit from government spending associated with stimulus-related construction projects;
•
restrictive covenants in our debt instruments, which can limit our financial and operational flexibility;
•
noncompliance with financial or other covenants in our debt agreements, which could result in our
lenders terminating our credit facilities and requiring us to repay outstanding borrowings;
•
inability to access the capital that our businesses or growth plans may require;
•
inability to manage credit risk adequately or to collect on contracts with a large number of customers;
•
the outcome or other potential consequences of regulatory matters and commercial litigation;
•
incurrence of additional expenses (including indemnification obligations) and other costs in connection
with litigation, regulatory and investigatory matters;
•
increases in our maintenance and replacement costs if we age our fleet, and decreases in the residual
value of our equipment;
•
inability to sell our new or used fleet in the amounts, or at the prices, we expect;
•
turnover in our management team and inability to attract and retain key personnel;
•
rates we can charge and time utilization we can achieve being less than anticipated;
•
costs we incur being more than anticipated, and the inability to realize expected savings in the amounts
or time frames planned;
1
•
dependence on key suppliers to obtain equipment and other supplies for our business on acceptable
terms;
•
competition from existing and new competitors;
•
disruptions in our information technology systems;
•
the costs of complying with environmental and safety regulations;
•
labor disputes, work stoppages or other labor difficulties, which may impact our productivity, and
potential enactment of new legislation or other changes in law affecting our labor relations or operations
generally;
•
shortfalls in our insurance coverage;
•
adverse developments in our existing claims or significant increases in new claims; and
•
other factors discussed under Item 1A—Risk Factors and elsewhere in this annual report.
We make no commitment to revise or update any forward-looking statements in order to reflect events or
circumstances after the date any such statement is made.
PART I
United Rentals, Inc., incorporated in Delaware in 1997, is principally a holding company. We primarily
conduct our operations through our wholly owned subsidiary, United Rentals (North America), Inc., and its
subsidiaries. As used in this report, the term “Holdings” refers to United Rentals, Inc., the term “URNA” refers to
United Rentals (North America), Inc., and the terms the “Company,” “United Rentals,” “we,” “us,” and “our”
refer to United Rentals, Inc. and its subsidiaries, in each case unless otherwise indicated.
Unless otherwise indicated, the information under Items 1, 1A and 2 is as of January 1, 2012.
Item 1.
Business
General
United Rentals is the largest equipment rental company in the world and our network consists of 529 rental
locations in the United States and Canada. We offer approximately 3,000 classes of equipment for rent to
customers that include construction and industrial companies, manufacturers, utilities, municipalities,
homeowners, and government entities. In 2011, we generated total revenues of $2.6 billion, including $2.2 billion
of equipment rental revenue.
As of December 31, 2011, our fleet of rental equipment included approximately 230,000 units. The total
original equipment cost of our fleet (“OEC”), based on the initial consideration paid, was $4.3 billion and $3.8
billion at December 31, 2011 and 2010, respectively. The fleet includes:
•
General construction and industrial equipment, such as backhoes, skid-steer loaders, forklifts,
earthmoving equipment and material handling equipment, which accounted for approximately 41
percent of our total 2011 equipment rental revenue;
•
Aerial work platforms, such as boom lifts and scissor lifts, which accounted for approximately 39
percent of our total 2011 equipment rental revenue;
•
General tools and light equipment, such as pressure washers, water pumps, generators, heaters and
power tools, which accounted for approximately 8 percent of our total 2011 equipment rental revenue;
•
Trench safety equipment, such as trench shields, aluminum hydraulic shoring systems, slide rails,
crossing plates, construction lasers and line testing equipment for underground work, which accounted
for approximately 6 percent of our total 2011 equipment rental revenue; and
2
•
Power and HVAC (“heating, ventilating and air conditioning”) equipment, such as portable diesel
generators, electrical distribution equipment, and temperature control equipment including heating and
cooling equipment, which accounted for approximately 6 percent of our total 2011 equipment rental
revenue.
In addition to renting equipment, we sell new and used equipment as well as related contractor supplies,
parts and service.
Proposed Acquisition of RSC Holdings, Inc.
On December 15, 2011, we entered into a definitive merger agreement with RSC Holdings, Inc. (“RSC”),
pursuant to which we have agreed to acquire RSC in a cash-and-stock transaction that ascribes a total enterprise
value of $4.2 billion to RSC. RSC is one of the largest providers of rental equipment in North America, focusing
on industrial, maintenance and non-residential construction markets, with approximately $2.7 billion of
equipment at original cost as of September 30, 2011. At the effective time of the merger, each outstanding share
of RSC common stock will be converted into the right to receive $10.80 in cash and 0.2783 of a share of our
common stock. Total cash consideration paid to holders of RSC common stock is expected to be approximately
$1.1 billion and we anticipate issuing approximately 29 million shares of common stock in the merger. In
addition, at the effective time of the merger, the size of our board of directors will be increased as three of RSC’s
current independent directors designated by RSC will be appointed to our board of directors. The cash portion of
the merger will be financed through new debt issuances and drawing on current loan facilities. In connection with
the proposed merger, we intend to re-pay the outstanding amounts on RSC’s existing senior secured credit
facilities and senior secured notes due 2017, which totaled $854 million as of September 30, 2011, and assume
all of RSC’s remaining $1.4 billion of unsecured debt after such repayment.
The parties’ obligations to complete the merger are subject to several conditions including, among others,
(i) approval of the transaction by our stockholders and RSC stockholders, (ii) notification and clearance under
certain antitrust statutes, (iii) delivery of tax opinions and a solvency opinion, (iv) the absence of any change,
event, circumstance or development from the date of the merger agreement until the effective time of the merger,
that has had or is reasonably likely to have a material adverse effect on us or RSC, and (v) other customary
conditions, including the items described in our Current Report on Form 8-K filed December 21, 2011. We
expect the merger to close in the first half of 2012.
As previously announced, our Board has indicated its intention to authorize a stock buyback of up to $200
million of the Company’s common stock after closing of the RSC acquisition. Our current intention is to
complete the stock buyback within six to twelve months after closing of the RSC acquisition. It is currently
expected that the stock buyback will be financed by drawing on current loan facilities.
Strategy
For the past several years, we have focused on optimizing the profitability of our core rental business
through revenue growth and margin expansion. To achieve this objective, we have developed a strategy focused
on customer segmentation, rate management, fleet management and disciplined cost control. Additionally, we are
continuing to strengthen our competitiveness through customer service excellence. This strategy calls for a
superior standard of service to customers, often provided through a single point of contact; an increasing
proportion of revenues derived from larger accounts; and a targeted presence in industrial and specialty markets.
Although the economic environment continued to present challenges for both our Company and the U.S.
equipment rental industry in 2011, we succeeded in realizing a number of achievements related to our strategy.
For the full year 2011, compared with 2010, these achievements included:
•
A 6.1 percent increase in rental rates;
•
A 13.4 percent increase in the volume of OEC on rent;
3
•
A 3.5 percentage point increase in time utilization on a larger fleet;
•
An increase in the proportion of equipment rental revenues derived from National Account customers,
from 31 percent in 2010 to 35 percent in 2011. National Accounts are generally defined as customers
with potential annual equipment rental spend of at least $500,000 or customers doing business in
multiple locations;
•
Continued improvement in customer service management, including an increase in the proportion of
equipment rental revenues derived from accounts that are managed by a single point of contact from 51
percent in 2010 to 55 percent in 2011. Establishing a single point of contact for our key accounts helps
us to provide customer service management that is more consistent and satisfactory. Additionally, we
expanded our centralized Customer Care Center (“CCC”). The CCC, which established a second base of
operations in 2010, handled 10 percent more rental reservations in 2011 compared to 2010;
•
The continued optimization of our network of rental locations, including an increase in 2011 of 7, or 9
percent, in the number of our trench safety, power and HVAC rental locations; and
•
A 0.8 percentage point improvement in selling, general and administrative expenses as a percentage of
revenue.
In 2012, we will continue to focus on optimizing our core business through diligent management of the
rental process, the strengthening of our customer service capabilities, and sustained cost efficiencies.
Additionally, we will focus on:
•
Leveraging technology and training to improve rental rate performance and to optimize the
transportation of our rental equipment to and from customer jobsites;
•
Further increasing the proportion of our revenues derived from National Accounts and other large
customers through customer segmentation. To the extent that we are successful, we believe that we can
improve our equipment rental gross margin and overall profitability over time, as large accounts tend to
rent more equipment for longer periods and can be serviced more cost effectively than short-term
transactional customers;
•
Accelerating our pursuit of opportunities in the industrial marketplace, where we believe our depth of
resources and branch footprint give us a competitive advantage. Additionally, industrial equipment
demand is subject to different cyclical pressures than construction demand, making our aggregate end
markets less volatile; and
•
Further capitalizing on the demand for the higher-margin power and climate control equipment rented
by our trench safety, power and HVAC business.
Industry Overview and Economic Outlook
We serve four principal end markets for equipment rental in North America: commercial, infrastructure,
industrial and residential. In 2011, based on an analysis of our charge customers’ Standard Industrial
Classification (“SIC”) codes:
•
Commercial (private non-residential) construction rentals related to the construction and remodeling of
office, retail, lodging and healthcare and other commercial facilities represented approximately 54
percent of our rental revenues;
•
Industrial rentals to manufacturers, chemical companies, paper mills, railroads, ship builders, utilities
and other industries represented approximately 22 percent of our rental revenues;
•
Infrastructure (private and public non-residential) construction rentals related to the building of public
structures such as bridges, highways, power plants and airports represented approximately 18 percent of
our rental revenues; and
4
•
Residential rentals for the construction and renovation of homes represented approximately 6 percent of
our rental revenues.
Although overall construction activity remained weak in 2011, our performance was strong. Compared with
the prior year, our rental rates increased 6.1 percent and the volume of OEC on rent increased 13.4 percent. We
believe these two metrics reflect a combination of positive factors: a modest improvement in our operating
environment; a secular shift from customer ownership to the rental of construction equipment; and the benefit of
our strategy, particularly our increased focus on National Accounts and other large customers. Although there is
no certainty that these trends will continue, we believe that our strategy has already put us in a position to
capitalize on our industry leadership and customer service differentiation in a recovery.
In 2012, based on our analysis of leading industry forecasts and broader economic indicators, we expect
most of our end markets to continue to recover at a modest pace. Specifically, we estimate that U.S. spending on
private non-residential construction, our primary end market, will show a single-digit percentage increase over
2011.
Competitive Advantages
We believe that we benefit from the following competitive advantages:
Large and Diverse Rental Fleet. Our large and diverse fleet allows us to serve large customers that require
substantial quantities and/or wide varieties of equipment. We believe our ability to serve such customers should
allow us to improve our performance and enhance our market leadership position.
We manage our rental fleet, which is the largest and most comprehensive in the industry, utilizing a lifecycle approach that focuses on satisfying customer demand and optimizing utilization levels. As part of this lifecycle approach, we closely monitor repairs and maintenance expense and can anticipate, based on our extensive
experience with a large and diverse fleet, the optimum time to dispose of an asset. Our fleet age, which is
calculated on a unit-weighted basis, was 46.4 months at December 31, 2011 compared with 47.7 months at
December 31, 2010.
Significant Purchasing Power. We purchase large amounts of equipment, contractor supplies and other
items, which enables us to negotiate favorable pricing, warranty and other terms with our vendors.
National Account Program. Our National Account sales force is dedicated to establishing and expanding
relationships with large companies, particularly those with a national or multi-regional presence. We offer our
National Account customers the benefits of a consistent level of service across North America, a wide selection
of equipment and a single point of contact for all their equipment needs. Equipment rental revenues from
National Account customers were approximately $750 million and $575 million in 2011 and 2010, respectively,
and represented approximately 35 and 31 percent of our total equipment rental revenues in 2011 and 2010,
respectively. With our continued focus on large National Accounts, we expect this percentage to increase over
time.
Operating Efficiencies. We benefit from the following operating efficiencies:
•
Equipment Sharing Among Branches. We generally group our branches into districts of six to 10
locations that are in the same geographic area. Our districts are generally grouped into regions of seven
to 11 districts. Each branch within a region can access equipment located elsewhere in the region. This
sharing increases equipment utilization because equipment that is idle at one branch can be marketed
and rented through other branches. Additionally, fleet sharing allows us to be more disciplined with our
capital spend.
•
Customer Care Center. We have a CCC based in Tampa, Florida and Charlotte, North Carolina that
handles all 1-800-UR-RENTS telephone calls. The CCC handles many of the 1-800-UR-RENTS
5
telephone calls without having to route them to individual branches, which frees up branch employee
time. In 2010, we established the North Carolina base of operations for the CCC, which facilitated the
CCC’s handling of 10 percent more rental reservations in 2011 than in 2010. The CCC provides us with
the ability to provide a more uniform quality experience to customers, manage fleet sharing more
effectively and free up branch employee time.
•
Consolidation of Common Functions. We reduce costs through the consolidation of functions that are
common to our branches, such as accounts payable, payroll, benefits and risk management, information
technology and credit and collection.
Information Technology Systems. We have a wide variety of information technology systems, some
proprietary and some licensed, that support our operations. This information technology infrastructure facilitates
our ability to make rapid and informed decisions, respond quickly to changing market conditions and share rental
equipment among branches. We have an in-house team of information technology specialists that supports our
systems.
Strong Brand Recognition. As the largest equipment rental company in the United States, we have strong
brand recognition, which helps us to attract new customers and build customer loyalty.
Geographic and Customer Diversity. We have 529 rental locations in 48 states and 10 Canadian provinces
and serve customers that range from Fortune 500 companies to small businesses and homeowners. We believe
that our geographic and customer diversity provides us with many advantages including:
•
enabling us to better serve National Account customers with multiple locations;
•
helping us achieve favorable resale prices by allowing us to access used equipment resale markets
across North America; and
•
reducing our dependence on any particular customer.
Our operations in Canada are subject to the risks normally associated with international operations. These
include (i) the need to convert currencies, which could result in a gain or loss depending on fluctuations in
exchange rates and (ii) the need to comply with foreign laws and regulations, as well as U.S. laws and regulations
applicable to our operations in foreign jurisdictions. For additional financial information regarding our
geographic diversity, see note 4 to our consolidated financial statements.
Strong and Motivated Branch Management. Each of our full-service branches has a branch manager who
is supervised by a district manager. We believe that our managers are among the most knowledgeable and
experienced in the industry and we empower them, within budgetary guidelines, to make day-to-day decisions
concerning branch matters. Each regional office has a management team that monitors branch, district and
regional performance with extensive systems and controls, including performance benchmarks and detailed
monthly operating reviews.
Employee Training Programs. We are dedicated to providing training and development opportunities to our
employees. In 2011, our employees enhanced their skills through over 265,000 hours of training, including safety
training, equipment-related training from our suppliers and online courses covering a variety of subjects.
Risk Management and Safety Programs. Our risk management department is staffed by experienced
professionals directing the procurement of insurance, managing claims made against the Company, and
developing loss prevention programs to address workplace safety, driver safety and customer safety. The
department’s primary focus is on the protection of our employees and assets, as well as protecting the Company
from liability for accidental loss.
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Segment Information
We have two reportable segments–general rentals and trench safety, power and HVAC. Segment financial
information is presented in note 4 to our consolidated financial statements. The general rentals segment includes
the rental of construction, aerial, industrial and homeowner equipment and related services and activities. The
general rentals segment’s customers include construction and industrial companies, manufacturers, utilities,
municipalities and homeowners. The general rentals segment comprises seven geographic regions–the
Southwest, Gulf, Northwest, Southeast, Midwest, East, and the Northeast Canada–and operates throughout the
United States and Canada. The trench safety, power and HVAC segment includes the rental of specialty
construction products and related services. The trench safety, power and HVAC segment’s customers include
construction companies involved in infrastructure projects, municipalities and industrial companies. This
segment operates throughout the United States and in Canada.
Products and Services
Our principal products and services are described below.
Equipment Rental. We offer for rent approximately 3,000 classes of rental equipment on an hourly, daily,
weekly or monthly basis. The types of equipment that we offer include general construction and industrial
equipment; aerial work platforms; trench safety equipment; power and HVAC equipment; and general tools and
light equipment. The age of our fleet was 46.4 months at December 31, 2011, compared to 47.7 months at
December 31, 2010.
Sales of Rental Equipment. We routinely sell used rental equipment and invest in new equipment in order
to manage repairs and maintenance costs, as well as the composition and size of our fleet. We also sell used
equipment in response to customer demand for this equipment. Consistent with the life-cycle approach we use to
manage our fleet, the rate at which we replace used equipment with new equipment depends on a number of
factors, including changing general economic conditions, growth opportunities, the market for used equipment,
the age of the fleet and the need to adjust fleet composition to meet customer demand.
We utilize many channels to sell used equipment: through our national sales force, which can access many
resale markets across North America; at auction; through brokers; and directly to manufacturers. We also sell
used equipment through our website, which includes an online database of used equipment available for sale. In
addition, we hold United Rentals Certified Auctions on eBay to provide customers with another convenient
online tool for purchasing used equipment.
Sales of New Equipment. We sell equipment for many leading equipment manufacturers. The
manufacturers that we represent and the brands that we carry include: Genie, JLG and Skyjack (aerial lifts);
Multiquip, Wacker and Honda USA (compaction equipment, generators and pumps); Sullair (compressors);
Skytrak and JLG (rough terrain reach forklifts); Takeuchi (skid-steer loaders); Terex (telehandlers); and DeWalt
(generators). The type of new equipment that we sell varies by location.
Contractor Supplies Sales. We sell a variety of contractor supplies including construction consumables,
tools, small equipment and safety supplies. Our target customers for contractor supplies are our existing rental
customers.
Service and Other Revenues. We also offer repair, maintenance and rental protection services and sell parts
for equipment that is owned by our customers. Our target customers for these types of ancillary services are our
current rental customers as well as those who purchase both new and used equipment from our branches.
RENTALMAN(R) and INFOMANAGER(R) Software. We have two subsidiaries that develop and market
software. One of the subsidiaries develops and markets RENTALMAN(R), which is an enterprise resource
7
planning application used by ourselves and most of the other largest equipment rental companies. The other
subsidiary develops and markets INFOMANAGER(R), which provides a complete solution for creating an
advanced business intelligence system. INFOMANAGER(R) helps with extracting raw data from transactional
applications, transforming it into more useful information and saving it in a database that is specifically
optimized for analytical use.
Customers
Our customer base is highly diversified and ranges from Fortune 500 companies to small businesses and
homeowners. In 2011, our largest customer accounted for less than one percent of our revenues and our top 10
customers in the aggregate accounted for approximately four percent of our revenues. Historically, over 90
percent of our business each year, as measured by equipment rental revenues, has been generated from previous
customers.
Our customer base varies by branch and is determined by several factors, including the equipment mix and
marketing focus of the particular branch as well as the business composition of the local economy, including
construction opportunities with different customers. Our customers include:
•
construction companies that use equipment for constructing and renovating commercial buildings,
warehouses, industrial and manufacturing plants, office parks, airports, residential developments and
other facilities;
•
industrial companies—such as manufacturers, chemical companies, paper mills, railroads, ship builders
and utilities—that use equipment for plant maintenance, upgrades, expansion and construction;
•
municipalities that require equipment for a variety of purposes; and
•
homeowners and other individuals that use equipment for projects that range from simple repairs to
major renovations.
Our business is seasonal, with demand for our rental equipment tending to be lower in the winter months.
Sales and Marketing
We market our products and services through multiple channels as described below.
Sales Force. We have approximately 1,700 sales people, including approximately 900 outside sales
representatives who frequently travel to customer jobsites and meet with customers, and approximately 800
inside sales representatives who work in our branches and at our customer care center. Our sales representatives
are responsible for calling on existing and potential customers as well as assisting our customers in planning for
their equipment needs. We have ongoing programs for training our employees in sales and service skills and on
strategies for maximizing the value of each transaction.
National Account Program. Our National Account sales force is dedicated to establishing and expanding
relationships with large customers, particularly those with a national or multi-regional presence. Our National
Account team, which consists of approximately 55 sales professionals and support staff, and includes those who
service government agencies, closely coordinates its efforts with the local sales force in each area.
E-Rentals. Our customers can rent or buy equipment online 24 hours a day, seven days a week, at our
E-Rentals portal, which can be found at http://www.ur.com. Our customers can also use our UR data application
to access real-time reports on their business activity with us.
Advertising. We promote our business through local and national advertising in various media, including
trade publications, yellow pages, the Internet, radio and direct mail. We also regularly participate in industry
trade shows and conferences and sponsor a variety of local promotional events.
8
Suppliers
Our strategic approach with respect to our suppliers is to maintain the minimum number of suppliers per
category of equipment that can satisfy our anticipated volume and business requirements. This approach is
designed to ensure the terms we negotiate are competitive and that there is sufficient product available to meet
anticipated customer demand. We utilize a comprehensive selection process to determine our equipment vendors.
We consider product capabilities and industry position, the terms being offered, product liability history,
customer acceptance and financial strength. We estimate that our largest supplier accounted for approximately 19
percent of our 2011 purchases of equipment, measured on a dollar basis, and that our 10 largest suppliers in the
aggregate accounted for approximately 68 percent of such purchases. We believe we have sufficient alternative
sources of supply available for each of our major equipment categories.
Information Technology Systems
In support of our rental business, we have information technology systems which facilitate rapid and
informed decision-making and enable us to respond quickly to changing market conditions. Each branch is
equipped with one or more workstations that are electronically linked to our other locations and to our IBM
System i™ system located at our data center. Rental transactions can be entered at these workstations and
processed on a real-time basis. Management, branch and call center personnel can access these systems 24 hours
a day.
These systems:
•
enable branch personnel to (i) determine equipment availability, (ii) access all equipment within a
geographic region and arrange for equipment to be delivered from anywhere in the region directly to the
customer, (iii) monitor business activity on a real-time basis and (iv) obtain customized reports on a
wide range of operating and financial data, including equipment utilization, rental rate trends,
maintenance histories and customer transaction histories;
•
permit customers to access their accounts online; and
•
allow management to obtain a wide range of operational and financial data.
Our information technology systems and website are supported by our in-house group of information
technology specialists working in conjunction with our strategic technology partners and service providers. This
group trains our branch personnel; upgrades and customizes our systems; provides hardware and technology
support; operates a support desk to assist branch and other personnel in the day-to-day use of the systems;
extends the systems to newly acquired locations; and manages our website.
Leveraging information technology to achieve greater efficiencies and improve customer service is a critical
element of our strategy. In 2011, we made the following investments in the area of technology:
•
Pricing Optimization: We enhanced our price optimization software, which was deployed companywide in 2010. We deployed a deal management application that allows us to evaluate and approve any
preliminary pricing agreement the field employees enter into with a customer prior to approval in our
systems. Our pricing system includes customer-centric pricing (differentiated pricing based on specific
customer attributes) which is available in the branch rental system and is provided in real-time to our
sales representatives in the field on their smartphones;
•
Field Automation Strategy and Technology: We continued to increase the use of wireless handheld
computers with GPS capabilities and route optimization and dispatching software for the delivery and
pick-up of our equipment to improve service to our customers while operating more efficiently in our
branches. This program is now used at approximately 75 percent of our branches. We expect to
complete the company-wide deployment of handheld GPS devices and route optimization and
dispatching software in 2012;
9
•
Voice over Internet Protocol (“VoIP”): We continued to improve our VoIP voice communication
systems for our call center, credit offices and a group of pilot branches, to better answer, transfer and
route calls to provide improved customer service and internal collaboration. Our VoIP systems allow us
to route calls to other branches in the area or to our call center when all branch personnel are busy
serving customers;
•
Customer Service Scorecard: All of our branches utilize a customer service scorecard to improve and
monitor their performance across five critical dimensions: service response time, on-time delivery,
off-rent pick-up time, equipment availability and billing dispute resolution. In 2011, we made the
scorecards available to our sales representatives at the customer level; and
•
Enterprise Data Warehouse: We initially implemented an enterprise data warehouse focused on
supporting our customer service and sales force automation initiatives in 2009, and subsequently
implemented additional reporting packages within the enterprise data warehouse focused on customer
relationship management, sales force effectiveness, financial management, operations management and
customer and product profitability. Additionally, automated campaigns and leads from internal and
external data sources were routed to our sales force automation system to improve customer retention
and increase our share of wallet.
Each of these investments is aligned with our strategic focus on customer service and operational
efficiencies.
We have a fully functional back-up facility designed to enable business continuity for our core rental and
financial business systems in the event that our main computer facility becomes inoperative. This back-up facility
also allows us to perform system upgrades and maintenance without interfering with the normal ongoing
operation of our information technology systems.
Competition
The U.S. equipment rental industry is highly fragmented and competitive. As the largest equipment rental
company in the industry, we estimate that we have an approximate nine percent market share and that the four
largest companies, including RSC, account for approximately 24 percent of industry revenue, based on 2010
equipment rental revenues from construction and industrial equipment as measured by the American Rental
Association (“ARA”). Our competitors primarily include small, independent businesses with one or two rental
locations; regional competitors that operate in one or more states; public companies or divisions of public
companies that operate nationally or internationally; and equipment vendors and dealers who both sell and rent
equipment directly to customers. We believe we are well positioned to take advantage of this environment
because, as a larger company, we have more resources and certain competitive advantages over our smaller
competitors. These advantages include greater purchasing power, the ability to provide customers with a broader
range of equipment and services, and greater flexibility to transfer equipment among locations in response to, and
in anticipation of, customer demand. The fragmented nature of the industry and our relatively small market share,
however, may adversely impact our ability to mitigate rate pressure.
Environmental and Safety Regulations
Our operations are subject to numerous laws governing environmental protection and occupational health
and safety matters. These laws regulate such issues as wastewater, stormwater, solid and hazardous wastes and
materials, and air quality. Our operations generally do not raise significant environmental risks, but we use and
store hazardous materials as part of maintaining our rental equipment fleet and the overall operations of our
business, dispose of solid and hazardous waste and wastewater from equipment washing, and store and dispense
petroleum products from above-ground storage tanks located at certain of our locations. Under environmental
and safety laws, we may be liable for, among other things, (i) the costs of investigating and remediating
contamination at our sites as well as sites to which we sent hazardous wastes for disposal or treatment regardless
of fault and (ii) fines and penalties for non-compliance. We incur ongoing expenses associated with the
performance of appropriate investigation and remediation activities at certain of our locations.
10
Employees
We have approximately 7,500 employees. Of these, approximately 2,500 are salaried personnel and
approximately 5,000 are hourly personnel. Collective bargaining agreements relating to 65 separate locations
cover approximately 650 of our employees. We monitor employee satisfaction through ongoing surveys and
consider our relationship with our employees to be good.
Available Information
We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and amendments to these reports, as well as our other SEC filings, available on our website, free of charge, as
soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Our website
address is http://www.ur.com. The information contained on our website is not incorporated by reference in this
document.
Item 1A. Risk Factors
Our business, results of operations and financial condition are subject to numerous risks and uncertainties.
In connection with any investment decision with respect to our securities, you should carefully consider the
following risk factors, as well as the other information contained in this report and our other filings with the SEC.
Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also
impair our business operations. Should any of these risks materialize, our business, results of operations,
financial condition and future prospects could be negatively impacted, which in turn could affect the trading
value of our securities.
Clearance of the proposed RSC merger from the Canadian Competition Bureau (the “Bureau”) may not
be received, may take longer than expected or may impose conditions that are not presently anticipated or
cannot be met. Any delay in completing the merger with RSC due to difficulties in obtaining regulatory
approvals or satisfying other conditions may substantially reduce the benefits that we expect to obtain
from the merger.
We must receive clearance with respect to the proposed merger with RSC. Although the waiting period
under the Hart-Scott-Rodino Antitrust Improvement Act expired on January 20, 2012, the Bureau may impose
conditions on the completion of the merger or require changes to the terms of the merger agreement. These
conditions or changes could have the effect of delaying completion of the merger or imposing additional costs on
or limiting the revenues of the combined company following the merger, any of which might have a material
adverse effect on the combined company following the completion of the merger. Although we and RSC have
agreed in the merger agreement to use our reasonable best efforts to obtain the requisite governmental approvals
and/or clearances, we cannot provide any assurance that clearance from the Bureau will be obtained or that there
will not be any adverse consequences to our business or RSC’s business resulting from the failure to obtain the
clearance or from conditions that could be imposed in connection with obtaining the clearance, including
divestitures or other operating restrictions upon us, RSC, the combined company or its subsidiaries. Clearance
from the Bureau may not be obtained in a timely manner, and this could result in a delay in the consummation of
the merger.
In addition to obtaining the required governmental clearances and approvals, the merger is subject to a
number of other conditions beyond our control, including, among others, receipt of approvals from our or RSC’s
stockholders and the receipt of a solvency opinion with respect to the combined company. We cannot predict
whether or when the conditions required to complete the merger will be satisfied. Moreover, RSC or URI may
terminate the merger agreement if the merger is not consummated by June 15, 2012, except in certain limited
circumstances or if the transaction date is extended. Under specified circumstances, RSC or URI may be required
to pay significant fees to the other party in connection with the termination of the merger agreement. Any delay
11
in completing the merger, or failure to complete the merger as a result of such delay, may materially adversely
affect the synergies and other benefits that we expect to achieve if the merger and the integration of our and
RSC’s respective businesses are completed within the expected timeframe (the first half of 2012).
Combining our business with RSC’s business following completion of the proposed merger may be more
difficult, costly or time consuming than expected, which may adversely affect our results and negatively
affect the value of our stock following consummation of the merger.
The success of the merger with RSC will depend, in part, on our ability to realize the anticipated benefits
and cost savings from combining our business and RSC’s business. If we are unable to achieve these objectives
within the anticipated time frame, or at all, the anticipated benefits and cost savings of the transaction may not be
realized fully, or at all, or may take longer to realize than expected, and the value of our common stock may be
affected adversely. It is possible that the integration process could result in the loss of key employees, the
disruption of our ongoing business or inconsistencies in standards, controls, procedures and policies that
adversely affect our ability to maintain relationships with customers, employees and suppliers or to achieve the
anticipated benefits of the merger.
Issues that must be addressed in integrating the operations of RSC into our operations in order to realize the
anticipated benefits of the merger include, among other things:
•
integrating and optimizing the utilization of our and RSC’s rental equipment;
•
integrating our and RSC’s marketing, information technology and other systems;
•
maintenance of the combined company’s rental equipment portfolio;
•
conforming standards, controls, procedures and policies, business cultures and compensation structures
between the companies;
•
consolidating the equipment purchasing, maintenance and resale operations;
•
consolidating corporate and administrative functions;
•
consolidating branch locations;
•
consolidating sales and marketing operations;
•
identifying and eliminating redundant and underperforming operations and assets;
•
the retention of key employees;
•
minimizing the diversion of management’s attention from ongoing business concerns; and
•
the possibility of tax costs or inefficiencies associated with the integration of the operations of the
combined company.
An inability to realize the full extent of the anticipated benefits of the merger, as well as any delays
encountered in the integration process, could have an adverse effect upon our revenues, level of expenses and
operating results, which may adversely affect the value of our common stock after the completion of the merger.
In addition, the actual integration may result in additional and unforeseen expenses, and the anticipated
benefits of the integration plan may not be realized. Actual synergies, if achieved at all, may be lower than what
we expect and may take longer to achieve than anticipated. If we are not able to adequately address these
challenges, we may be unable to successfully integrate RSC’s operations into ours, or to fully realize the
anticipated benefits of the integration of the two companies.
12
The recent economic downturn, and resulting decreases in North American construction and industrial
activities, adversely affected our revenues and operating results by decreasing the demand for our
equipment and the prices that we could charge. A slowdown in the economic recovery or a decrease in
general economic activity could have further adverse effects on our revenues and operating results.
Our rental equipment is used primarily in the private non-residential construction industry, which is cyclical
in nature. Trench safety, power and HVAC equipment is principally used in connection with construction and
industrial activities. Over the past several years, our industry has experienced a decline in construction and
industrial activity, and we experienced weakness in our end markets, though we saw modest improvements in our
operating environment in 2011. The weakness in our end markets led to a decrease in the demand for our
equipment and the prices that we can charge and could lead to further decreases. Such decreases adversely affect
our operating results by causing our revenues to decline and, because certain of our costs are fixed, our operating
margins to be reduced. While many areas of the global economy are improving, a slowdown in the economic
recovery or worsening of economic conditions, in particular with respect to North American construction and
industrial activities, could cause further weakness in our end markets and adversely affect our revenues and
operating results.
The following factors, among others, may cause weakness in our end markets, either temporarily or longterm:
•
a decrease in expected levels of infrastructure spending, including lower than expected government
funding for economic stimulus projects;
•
a lack of availability of credit;
•
an increase in the cost of construction materials;
•
an increase in interest rates;
•
adverse weather conditions, which may temporarily affect a particular region; or
•
terrorism or hostilities involving the United States or Canada.
If we are unable to collect on contracts with customers, our operating results would be adversely affected.
One of the reasons some of our customers find it more attractive to rent equipment than own that equipment
is the need to deploy their capital elsewhere. This has been particularly true in industries with high growth rates
such as the construction industry. However, some of our customers may have liquidity issues and ultimately may
not be able to fulfill the terms of their rental agreements with us. If we are unable to manage credit risk issues
adequately, or if a large number of customers should have financial difficulties at the same time, our credit losses
could increase above historical levels and our operating results would be adversely affected. Further,
delinquencies and credit losses generally can be expected to increase during economic slowdowns or recessions.
Our operating results may fluctuate, which could affect the trading value of our securities.
Our revenues and operating results may fluctuate from quarter to quarter or over the longer term due to a
number of factors, which could adversely affect the trading value of our securities. These factors, in addition to
general economic conditions and the factors discussed above under “Cautionary Statement Regarding ForwardLooking Statements”, include, but are not limited to:
•
seasonal rental patterns of our customers, with rental activity tending to be lower in the winter;
•
changes in the size of our rental fleet and/or in the rate at which we sell our used equipment;
•
changes in private non-residential construction spending or government funding for infrastructure and
other construction projects;
•
changes in demand for, or utilization of, our equipment or in the prices we charge due to changes in
economic conditions, competition or other factors;
13
•
commodity price pressures and the resultant increase in the cost of fuel and steel to our equipment
suppliers, which can result in increased equipment costs for us;
•
other cost fluctuations, such as costs for employee-related compensation and healthcare benefits;
•
labor shortages, work stoppages or other labor difficulties;
•
potential enactment of new legislation affecting our operations or labor relations;
•
completion of acquisitions (including the proposed merger with RSC), divestitures or recapitalizations;
•
increases in interest rates and related increases in our interest expense and our debt service obligations;
•
the possible need, from time to time, to record goodwill impairment charges or other write-offs or
charges due to a variety of occurrences, such as the adoption of new accounting standards, the
impairment of assets, rental location divestitures, dislocation in the equity and/or credit markets,
consolidations or closings, restructurings, the refinancing of existing indebtedness or the buy-out of
equipment leases; and
•
currency risks and other risks of international operations.
Our common stock price has fluctuated significantly and may continue to do so in the future.
Our common stock price has fluctuated significantly and may continue to do so in the future for a number of
reasons, including:
•
announcements of developments related to our business;
•
market perceptions of the pending merger with RSC and the likelihood of our involvement in other
merger and acquisition activity;
•
variations in our revenues, gross margins, earnings or other financial results from investors’
expectations;
•
departure of key personnel;
•
purchases or sales of large blocks of our stock by institutional investors or transactions by insiders;
•
fluctuations in the results of our operations and general conditions in the economy, our market, and the
markets served by our customers;
•
investor perceptions of the equipment rental industry in general and our Company in particular; and
•
the operating and stock performance of comparable companies or related industries.
In addition, prices in the stock market have been volatile over the past few years. In many cases, the
fluctuations have been unrelated to the operating performance of the affected companies. As a result, the price of
our common stock could fluctuate in the future without regard to our or our competitors’ operating performance.
Our current level of indebtedness, which will increase upon completion of the RSC acquisition, exposes us
to various risks.
At December 31, 2011, our total indebtedness was approximately $3.0 billion, including $55 million of
subordinated convertible debentures. In the event that the proposed merger with RSC is completed, we intend to
finance the cash portion of the RSC merger consideration and repay the outstanding amounts on RSC’s existing
senior secured credit facilities and senior secured notes due 2017 through new debt issuances and drawing on
current loan facilities, and to assume all of RSC’s existing unsecured debt. We estimate that the principal amount
of our total indebtedness will increase by approximately $3.7 billion following completion of the RSC merger.
Our substantial indebtedness has the potential to affect us adversely in a number of ways. For example, it will or
could:
•
increase our vulnerability to adverse economic, industry or competitive developments;
14
•
require us to devote a substantial portion of our cash flow to debt service, reducing the funds available
for other purposes or otherwise constraining our financial flexibility;
•
restrict our ability to move operating cash flows to Holdings. As of December 31, 2011, primarily due to
losses sustained in prior years, URNA had limited restricted payment capacity under the most restrictive
restricted payment covenants in the indentures governing its outstanding indebtedness;
•
affect our ability to obtain additional financing, particularly since substantially all of our assets are
subject to security interests relating to existing indebtedness; and
•
decrease our profitability or cash flow.
Our increased indebtedness following consummation of the merger with RSC could further adversely affect
our operations and liquidity. In addition to increasing the foregoing risks, our anticipated level of indebtedness
could, among other things:
•
cause us to be less able to take advantage of significant business opportunities, such as acquisition
opportunities, and to react to changes in market or industry conditions;
•
cause us to be disadvantaged compared to competitors with less leverage;
•
result in a downgrade in our credit rating or the credit ratings of any of the indebtedness of our
subsidiaries which could increase the cost of further borrowings; and
•
limit our ability to borrow additional monies in the future to fund working capital, capital expenditures
and other general corporate purposes.
Further, if we are unable to service our indebtedness and fund our operations, we will be forced to adopt an
alternative strategy that may include:
•
reducing or delaying capital expenditures;
•
limiting our growth;
•
seeking additional capital;
•
selling assets; or
•
restructuring or refinancing our indebtedness.
Even if we adopt an alternative strategy, the strategy may not be successful and we may continue to be
unable to service our indebtedness and fund our operations.
A portion of our indebtedness bears interest at variable rates that are linked to changing market interest
rates. As a result, an increase in market interest rates would increase our interest expense and our debt service
obligations. At December 31, 2011, we had $1,065 million of indebtedness that bears interest at variable rates,
which we expect to increase following the RSC acquisition as we intend to finance a portion of the merger by
drawing on our current loan facilities. Our variable rate indebtedness currently represents 35 percent of our total
indebtedness, including our subordinated convertible debentures. We expect this percentage to decrease
significantly following the RSC acquisition, as our variable rate indebtedness will represent a smaller portion of
our total indebtedness following the acquisition. See Item 7A—Quantitative and Qualitative Disclosures About
Market Risk for additional information related to interest rate risk.
Despite our indebtedness level, which will increase in connection with the acquisition of RSC, following the
acquisition, we may be able to incur substantially more debt and take other actions that could diminish
our ability to make payments on our indebtedness when due, which could further exacerbate the risks
associated with our level of indebtedness.
Despite our indebtedness level, which will increase following the acquisition of RSC, we may be able to
incur substantially more indebtedness in the future. We are not fully restricted under the terms of the indentures
or agreements governing our indebtedness from incurring additional debt, securing existing or future debt,
15
recapitalizing our debt or taking a number of other actions that are not prohibited by the terms of the indentures
or agreements governing our indebtedness, any of which could have the effect of diminishing our ability to make
payments on our indebtedness when due and further exacerbate the risks associated with our level of
indebtedness.
If we are unable to satisfy the financial and other covenants in certain of our debt agreements, our lenders
could elect to terminate the agreements and require us to repay the outstanding borrowings, or we could
face other substantial costs.
Under the agreement governing our senior secured asset-based revolving credit facility (“ABL facility”), we
are required, among other things, to satisfy certain financial tests relating to: (i) the fixed charge coverage ratio
and (ii) the ratio of senior secured debt to adjusted EBITDA. As discussed in note 12 to our consolidated
financial statements, in October 2011, we amended the ABL facility. Subject to certain limited exceptions
specified in the ABL facility, these covenants will only apply in the future if availability under the ABL facility
falls below the greater of 10 percent of the maximum revolver amount under the ABL facility and $150 million.
Since the October 2011 amendment date and through December 31, 2011, availability under the ABL facility has
exceeded the required threshold and, as a result, these maintenance covenants have been inapplicable. Under our
accounts receivable securitization facility, we are required, among other things, to maintain certain financial tests
relating to: (i) the default ratio, (ii) the delinquency ratio, (iii) the dilution ratio and (iv) days sales outstanding. If
we are unable to satisfy these or any other of the relevant covenants, the lenders could elect to terminate the ABL
facility and/or the accounts receivable securitization facility and require us to repay outstanding borrowings. In
such event, unless we are able to refinance the indebtedness coming due and replace the ABL facility, accounts
receivable securitization facility and/or the other agreements governing our debt, we would likely not have
sufficient liquidity for our business needs and would be forced to adopt an alternative strategy as described
above. Even if we adopt an alternative strategy, the strategy may not be successful and we may not have
sufficient liquidity to service our debt and fund our operations.
Restrictive covenants in certain of the agreements and instruments governing our indebtedness may
adversely affect our financial and operational flexibility.
In addition to the risks with respect to covenant non-compliance, compliance with covenants may restrict
our ability to conduct our operations. These covenants could adversely affect our operating results by
significantly limiting our operating and financial flexibility. In addition to financial covenants, various other
covenants in the ABL facility, accounts receivable securitization facility, and the other agreements governing our
debt restrict our ability to, among other things:
•
incur additional indebtedness;
•
make prepayments of certain indebtedness;
•
pay dividends;
•
repurchase common stock;
•
make investments;
•
create liens; and
•
sell assets and engage in mergers and acquisitions.
We rely on available borrowings under the ABL facility and accounts receivable securitization facility for
cash to operate our business, which subjects us to risk, some of which is beyond our control.
In addition to cash we generate from our business, our principal existing sources of cash are borrowings
available under the ABL facility and accounts receivable securitization facility. If our access to such financing
was unavailable or reduced, or if such financing were to become significantly more expensive for any reason, we
may not be able to fund daily operations, which may cause material harm to our business or could affect our
16
ability to operate our business as a going concern. In addition, if any of our lenders experience difficulties that
render them unable to fund future draws on the facilities, we may not be able to access all or a portion of these
funds, which could have similar adverse consequences.
If we are unable to obtain additional capital as required, we may be unable to fund the capital outlays
required for the success of our business.
If the cash that we generate from our business, together with cash that we may borrow under the ABL
facility and accounts receivable securitization facility, is not sufficient to fund our capital requirements, we will
require additional debt and/or equity financing. However, we may not succeed in obtaining the requisite
additional financing or such financing may include terms that are not satisfactory to us. We may not be able to
obtain additional debt financing as a result of prevailing interest rates or other factors, including the presence of
covenants or other restrictions under the ABL facility and/or other agreements governing our debt. In the event
we seek to obtain equity financing, our stockholders may experience dilution as a result of the issuance of
additional equity securities. This dilution may be significant depending upon the amount of equity securities that
we issue and the prices at which we issue such securities. If we are unable to obtain sufficient additional capital
in the future, we may be unable to fund the capital outlays required for the success of our business, including
those relating to purchasing equipment, growth plans and refinancing existing indebtedness.
If we determine that our goodwill has become impaired, we may incur impairment charges, which would
negatively impact our operating results.
At December 31, 2011, we had $289 million of goodwill on our consolidated balance sheet. Goodwill
represents the excess of cost over the fair value of net assets acquired in business combinations. We assess
potential impairment of our goodwill at least annually. Impairment may result from significant changes in the
manner of use of the acquired assets, negative industry or economic trends and/or significant underperformance
relative to historic or projected operating results.
We have a holding company structure and we will depend in part on distributions from our subsidiaries in
order to pay amounts due on our indebtedness. Certain provisions of law or contractual restrictions could
limit distributions from our subsidiaries.
We derive substantially all of our operating income from, and hold substantially all of our assets through,
our subsidiaries. The effect of this structure is that we depend in part on the earnings of our subsidiaries, and the
payment or other distribution to us of these earnings, in order to meet our obligations under our outstanding debt.
Provisions of law, such as those requiring that dividends be paid only from surplus, could limit the ability of our
subsidiaries to make payments or other distributions to us. Furthermore, these subsidiaries could in certain
circumstances agree to contractual restrictions on their ability to make distributions.
We are subject to certain purported class action and stockholder litigation, which could adversely affect
our liquidity and results of operations.
As described in greater detail under Item 3-Legal Proceedings, we are subject to certain purported class
action and stockholder derivative lawsuits. We can give no assurances as to the outcome of these proceedings
and, regardless of the outcome, we may incur significant costs, including defense and indemnification costs, and
the time and attention of our management may be diverted from normal business operations. If we are ultimately
required to pay significant costs, damages or settlement amounts, such payments, to the extent not covered,
advanced or timely reimbursed by insurance, could materially and adversely affect our liquidity and results of
operations.
17
We are exposed to a variety of claims relating to our business, and our insurance may not fully cover them.
We are in the ordinary course exposed to a variety of claims relating to our business. These claims include
those relating to (i) personal injury or property damage involving equipment rented or sold by us, (ii) motor
vehicle accidents involving our vehicles and our employees and (iii) employment-related claims. Further, as
described elsewhere in this report, several stockholder derivative and class action lawsuits have been filed against
us. Currently, we carry a broad range of insurance for the protection of our assets and operations. However, such
insurance may not fully cover these claims for a number of reasons, including:
•
our insurance policies, reflecting a program structure that we believe reflects market conditions for
companies our size, are often subject to significant deductibles or self-insured retentions: $2 million per
occurrence for each general liability or automobile liability claim, and $1 million per occurrence for
each workers’ compensation claim;
•
our director and officer liability insurance policy has no deductible for individual non-indemnifiable
loss coverage, but is subject to a $2.5 million deductible for company reimbursement coverage and all
director and officer coverage is subject to certain exclusions;
•
we do not maintain stand-alone coverage for environmental liability (other than legally required
coverage), since we believe the cost for such coverage is high relative to the benefit it provides; and
•
certain types of claims, such as claims for punitive damages or for damages arising from intentional
misconduct, which are often alleged in third party lawsuits, might not be covered by our insurance.
We establish and regularly evaluate our loss reserves to address business operations claims, or portions
thereof, not covered by our insurance policies. To the extent that we are found liable for any significant claim or
claims that exceed our established levels of reserves, or that are not otherwise covered by insurance, we could
have to significantly increase our reserves, and our liquidity and operating results could be materially and
adversely affected. For instance, during the fourth quarter of 2010, we recognized a charge of $24 million related
to our provision for self-insurance reserves. The charge in particular reflected adverse experience in our portfolio
of automobile and general liability claims, as well as worker’s compensation claims. In addition, the purported
class action and derivative lawsuits against us, and our indemnification costs associated with such matters, may
not be fully reimbursable or covered by insurance. It is also possible that some or all of the insurance that is
currently available to us will not be available in the future on economically reasonable terms or at all.
We have made acquisitions in the past, which entail certain risks, as do any growth initiatives, including
additional acquisitions or consolidations, that we may pursue in the future.
We have historically achieved a portion of our growth through acquisitions, and we will continue to
consider potential acquisitions on a selective basis. From time-to-time we have also approached, or have been
approached, to explore consolidation opportunities with other public companies or large privately-held
companies.
Whether historical or in the future, it is possible that we will not realize the expected benefits from our
acquisitions or that our existing operations will be adversely affected as a result of acquisitions. Acquisitions
entail certain risks, including:
•
unrecorded liabilities of acquired companies that we fail to discover during our due diligence
investigations or that are not subject to indemnification or reimbursement by the seller;
•
difficulty in assimilating the operations and personnel of the acquired company within our existing
operations or in maintaining uniform standards;
•
loss of key employees of the acquired company;
•
the failure to achieve anticipated synergies; and
•
strains on management and other personnel time and resources to evaluate, negotiate and integrate
acquisitions.
18
We would expect to pay for any future acquisitions using cash, capital stock, notes and/or assumption of
indebtedness. To the extent that our existing sources of cash are not sufficient in any instance, we would expect
to need additional debt or equity financing, which involves its own risks, such as the dilutive effect on shares
held by our stockholders if we financed acquisitions by issuing convertible debt or equity securities.
We have also spent resources and efforts, apart from acquisitions, in attempting to enhance our rental
business over the past few years. These efforts place strains on our management and other personnel time and
resources, and require timely and continued investment in facilities, personnel and financial and management
systems and controls. We may not be successful in implementing all of the processes that are necessary to
support any of our growth initiatives, which could result in our expenses increasing disproportionately to our
incremental revenues, causing our operating margins and profitability to be adversely affected.
Our charter provisions, as well as other factors, may affect the likelihood of a takeover or change of
control of the Company.
Although our Board elected not to extend our stockholders’ rights plan upon its expiration in September
2011, we still have in place certain charter provisions, such as the inability for stockholders to act by written
consent, that may have the effect of deterring hostile takeovers or delaying or preventing changes in control or
management of the Company that are not approved by our board, including transactions in which our
stockholders might otherwise receive a premium for their shares over then-current market prices. We are also
subject to Section 203 of the Delaware General Corporation Law which, under certain circumstances, restricts the
ability of a publicly held Delaware corporation to engage in a business combination, such as a merger or sale of
assets, with any stockholder that, together with affiliates, owns 15 percent or more of the corporation’s
outstanding voting stock, which similarly could prohibit or delay the accomplishment of a change of control
transaction. In addition, under the ABL facility, a change of control (as defined in the credit agreement)
constitutes an event of default, entitling our lenders to terminate the ABL facility and require us to repay
outstanding borrowings. A change of control (as defined in the applicable agreement) is also a termination event
under our accounts receivable securitization facility and generally would require us to offer to repurchase our
outstanding senior and senior subordinated notes. As a result, the provisions of the agreements governing our
debt also may affect the likelihood of a takeover or other change of control.
Turnover of members of our management and our ability to attract and retain key personnel may affect
our ability to efficiently manage our business and execute our strategy.
Our success is dependent, in part, on the experience and skills of our management team, and competition in
our industry and the business world for top management talent is generally significant. Although we believe we
generally have competitive pay packages, we can provide no assurance that our efforts to attract and retain senior
management staff will be successful. Moreover, given the volatility in our stock price, it may be more difficult
and expensive to recruit and retain employees, particularly senior management, through grants of stock or stock
options. This in turn could place greater pressure on the Company to increase the cash component of its
compensation packages, which may adversely affect our operating results. If we are unable to fill and keep filled
all of our senior management positions, or if we lose the services of any key member of our senior management
team and are unable to find a suitable replacement in a timely fashion, we may be challenged to effectively
manage our business and execute our strategy.
Our operational and cost reduction strategies may not generate the improvements and efficiencies we
expect.
We have been pursuing a strategy of optimizing our field operations in order to improve sales force
effectiveness, and to focus our sales force’s efforts on increasing revenues from our National Account and other
large customers. We are also continuing to pursue our overall cost reduction program, which resulted in
substantial cost savings in the past. The extent to which these strategies will achieve our desired efficiencies and
19
goals in 2012 and beyond is uncertain, as their success depends on a number of factors, some of which are
beyond our control. Even if we carry out these strategies in the manner we currently expect, we may not achieve
the efficiencies or savings we anticipate, or on the timetable we anticipate, and there may be unforeseen
productivity, revenue or other consequences resulting from our strategies that may adversely affect us. Therefore,
there can be no guarantee that our strategies will prove effective in achieving desired profitability, margins or
returns to stockholders.
We are dependent on our relationships with key suppliers to obtain equipment and other supplies for our
business on acceptable terms.
We have achieved significant cost savings through our centralization of equipment and non-equipment
purchases. However, as a result, we depend on and are exposed to the credit risk of a group of key suppliers.
While we make every effort to evaluate our counterparties prior to entering into long-term and other significant
procurement contracts, we cannot predict the impact on our suppliers of the current economic environment and
other developments in their respective businesses. Insolvency, financial difficulties or other factors may result in
our suppliers not being able to fulfill the terms of their agreements with us. Further, such factors may render
suppliers unwilling to extend contracts that provide favorable terms to us, or may force them to seek to
renegotiate existing contracts with us. Although we believe we have alternative sources of supply for the
equipment and other supplies used in our business, termination of our relationship with any of our key suppliers
could have a material adverse effect on our business, financial condition or results of operations in the unlikely
event that we were unable to obtain adequate equipment or supplies from other sources in a timely manner or at
all.
If our rental fleet ages, our operating costs may increase, we may be unable to pass along such costs, and
our earnings may decrease. The costs of new equipment we use in our fleet may increase, requiring us to
spend more for replacement equipment or preventing us from procuring equipment on a timely basis.
If our rental equipment ages, the costs of maintaining such equipment, if not replaced within a certain period
of time, will likely increase. The costs of maintenance may materially increase in the future and could lead to
material adverse effects on our results of operations.
The cost of new equipment for use in our rental fleet could also increase due to increased material costs to
our suppliers or other factors beyond our control. Such increases could materially adversely impact our financial
condition and results of operations in future periods. Furthermore, changes in customer demand could cause
certain of our existing equipment to become obsolete and require us to purchase new equipment at increased
costs.
Our industry is highly competitive, and competitive pressures could lead to a decrease in our market share
or in the prices that we can charge.
The equipment rental industry is highly fragmented and competitive. Our competitors include small,
independent businesses with one or two rental locations, regional competitors that operate in one or more states,
public companies or divisions of public companies, and equipment vendors and dealers who both sell and rent
equipment directly to customers. We may in the future encounter increased competition from our existing
competitors or from new companies. Competitive pressures could adversely affect our revenues and operating
results by, among other things, decreasing our rental volumes, depressing the prices that we can charge or
increasing our costs to retain employees.
Disruptions in our information technology systems could adversely affect our operating results by limiting
our capacity to effectively monitor and control our operations.
Our information technology systems facilitate our ability to monitor and control our operations and adjust to
changing market conditions. Any disruptions in these systems or the failure of these systems to operate as
20
expected could, depending on the magnitude of the problem, adversely affect our operating results by limiting
our capacity to effectively monitor and control our operations and adjust to changing market conditions. In
addition, because our systems sometimes contain information about individuals and businesses, our failure to
appropriately maintain the security of the data we hold, whether as a result of our own error or the malfeasance
or errors of others, could harm our reputation or give rise to legal liabilities leading to lower revenues, increased
costs and other material adverse effects on our results of operations.
We are subject to numerous environmental and safety regulations. If we are required to incur compliance
or remediation costs that are not currently anticipated, our liquidity and operating results could be
materially and adversely affected.
Our operations are subject to numerous laws and regulations governing environmental protection and
occupational health and safety matters. These laws regulate such issues as wastewater, stormwater, solid and
hazardous waste and materials, and air quality. Under these laws, we may be liable for, among other things,
(i) the costs of investigating and remediating any contamination at our sites as well as sites to which we send
hazardous waste for disposal or treatment, regardless of fault and (ii) fines and penalties for non-compliance. Our
operations generally do not raise significant environmental risks, but we use hazardous materials to clean and
maintain equipment, dispose of solid and hazardous waste and wastewater from equipment washing, and store
and dispense petroleum products from above-ground storage tanks located at certain of our locations.
Based on conditions currently known to us, we do not believe that any pending or likely remediation and/or
compliance effort will have a material adverse effect on our business. We cannot be certain, however, as to the
potential financial impact on our business if new adverse environmental conditions are discovered or
environmental and safety requirements become more stringent. If we are required to incur environmental
compliance or remediation costs that are not currently anticipated, our liquidity and operating results could be
materially and adversely affected, depending on the magnitude of such costs.
We have operations throughout the United States, which exposes us to multiple state and local regulations,
in addition to federal law and requirements as a government contractor. Changes in applicable law,
regulations or requirements, or our material failure to comply with any of them, can increase our costs
and have other negative impacts on our business.
Our 436 branch locations in the United States are located in 48 states, which exposes us to a host of different
state and local regulations, in addition to federal law and regulatory and contractual requirements we face as a
government contractor. These laws and requirements address multiple aspects of our operations, such as worker
safety, consumer rights, privacy, employee benefits and more, and there are often different requirements in
different jurisdictions. Changes in these requirements, or any material failure by our branches to comply with
them, can increase our costs, affect our reputation, limit our business, drain management time and attention and
generally otherwise impact our operations in adverse ways.
Labor disputes could disrupt our ability to serve our customers and/or lead to higher labor costs.
We currently have approximately 650 employees who are represented by unions and covered by collective
bargaining agreements and approximately 6,850 employees who are not represented by unions. Various unions
occasionally seek to organize certain of our nonunion employees. Union organizing efforts or collective
bargaining negotiations could potentially lead to work stoppages and/or slowdowns or strikes by certain of our
employees, which could adversely affect our ability to serve our customers. Further, settlement of actual or
threatened labor disputes or an increase in the number of our employees covered by collective bargaining
agreements can have unknown effects on our labor costs, productivity and flexibility.
Fluctuations in fuel costs or reduced supplies of fuel could harm our business.
We believe that one of our competitive advantages is the mobility of our fleet. Accordingly, we could be
adversely affected by limitations on fuel supplies or significant increases in fuel prices that result in higher costs
21
to us for transporting equipment from one branch to another branch. Although we have used, and may continue
to use, futures contracts to hedge against fluctuations in fuel prices, a significant or protracted price fluctuation or
disruption of fuel supplies could have a material adverse effect on our financial condition and results of
operations.
Our rental fleet is subject to residual value risk upon disposition, and may not sell at the prices or in the
quantities we expect.
The market value of any given piece of rental equipment could be less than its depreciated value at the time
it is sold. The market value of used rental equipment depends on several factors, including:
•
the market price for new equipment of a like kind;
•
wear and tear on the equipment relative to its age and the performance of preventive maintenance;
•
the time of year that it is sold;
•
the supply of used equipment on the market;
•
the existence and capacities of different sales outlets;
•
the age of the equipment at the time it is sold;
•
worldwide and domestic demand for used equipment; and
•
general economic conditions.
We include in income from operations the difference between the sales price and the depreciated value of an
item of equipment sold. Changes in our assumptions regarding depreciation could change our depreciation
expense, as well as the gain or loss realized upon disposal of equipment. Sales of our used rental equipment at
prices that fall significantly below our projections and/or in lesser quantities than we anticipate will have a
negative impact on our results of operations and cash flows.
We have operations outside the United States. As a result, we may incur losses from currency conversions
and have higher costs than we otherwise would have due to the need to comply with foreign laws.
Our operations in Canada are subject to the risks normally associated with international operations. These
include (i) the need to convert currencies, which could result in a gain or loss depending on fluctuations in
exchange rates and (ii) the need to comply with foreign laws and regulations, as well as U.S. laws and regulations
applicable to our operations in foreign jurisdictions. See Item 7A—Quantitative and Qualitative Disclosures
About Market Risk for additional information related to currency exchange risk.
Item 1B.
Unresolved Staff Comments
None.
22
Item 2.
Properties
As of January 1, 2012, we operated 529 rental locations. 436 of these locations are in the United States and
93 are in Canada. The number of locations in each state or province is shown in the table below, as well as the
number of locations that are in our general rentals (GR) and trench safety, power and HVAC (TPH) segments.
United States
•
Alabama (GR 6)
•
Louisiana (GR 5, TPH 3)
•
North Dakota (GR 3)
•
Alaska (GR 3)
•
Maine (GR 2)
•
Ohio (GR 10, TPH 3)
•
Arizona (GR 8, TPH 2)
•
Maryland (GR 9, TPH 3)
•
Oklahoma (GR 3, TPH 1)
•
Arkansas (GR 2, TPH 1)
•
Massachusetts (GR 6, TPH 2)
•
Oregon (GR 7, TPH 1)
•
California (GR 49, TPH 12)
•
Michigan (GR 3)
•
Pennsylvania (GR 14)
•
Colorado (GR 7, TPH 1)
•
Minnesota (GR 6, TPH 1)
•
Rhode Island (GR 1)
•
Connecticut (GR 7, TPH 1)
•
Mississippi (GR 1)
•
South Carolina (GR 7)
•
Delaware (GR 2)
•
Missouri (GR 5, TPH 3)
•
South Dakota (GR 2)
•
Florida (GR 18, TPH 8)
•
Montana (GR 1)
•
Tennessee (GR 10, TPH 1)
•
Georgia (GR 16, TPH 2)
•
Nebraska (GR 3, TPH 1)
•
Texas (GR 40, TPH 10)
•
Idaho (GR 2)
•
Nevada (GR 4, TPH 3)
•
Utah (GR 3, TPH 1)
•
Illinois (GR 4, TPH 2)
•
New Hampshire (GR 4)
•
Virginia (GR 12, TPH 1)
•
Indiana (GR 8, TPH 1)
•
New Jersey (GR 7, TPH 3)
•
Washington (GR 12, TPH 5)
•
Iowa (GR 4, TPH 1)
•
New Mexico (GR 4)
•
West Virginia (GR 3)
•
Kansas (GR 2)
•
New York (GR 13)
•
Wisconsin (GR 4, TPH 1)
•
Kentucky (GR 4)
•
North Carolina (GR 11, TPH 2) •
Wyoming (GR 3)
Canada
•
Alberta (GR 8)
•
British Columbia (GR 14, TPH 1)
•
Manitoba (GR 5)
•
New Brunswick (GR 8)
•
Newfoundland (GR 7)
•
Nova Scotia (GR 4)
•
Ontario (GR 30, TPH 3)
•
Prince Edward Island (GR 1)
•
Quebec (GR 8, TPH 1)
•
Saskatchewan (GR 3)
Our branch locations generally include facilities for displaying equipment and, depending on the location,
may include separate areas for equipment service, storage and displaying contractor supplies. We own 116 of our
branch locations and lease the other branch locations. We also lease or own other premises used for purposes
such as district and regional offices and service centers.
23
We have a fleet of approximately 4,800 vehicles. These vehicles are used for delivery, maintenance,
management and sales functions. Approximately 87 percent of this fleet is leased and the balance is owned.
Our corporate headquarters are located in Greenwich, Connecticut, where we occupy approximately 41,000
square feet under a lease that expires in 2013. Additionally, we maintain a facility in Shelton, Connecticut, where
we occupy approximately 32,000 square feet under a lease that expires in 2016. Further, we maintain sharedservice facilities in Tampa, Florida, where we occupy approximately 43,000 square feet under a lease that expires
in 2015, and Charlotte, North Carolina, where we occupy approximately 23,000 square feet under a lease that
expires in 2012.
Item 3.
Legal Proceedings
A description of legal proceedings can be found in note 15 to our consolidated financial statements, included
in this report at Item 8—Financial Statements and Supplementary Data, and is incorporated by reference into this
Item 3.
Item 4.
(Removed and Reserved)
PART II
Item 5.
Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Price Range of Common Stock
Holdings’ common stock trades on the New York Stock Exchange under the symbol “URI.” The following
table sets forth, for the periods indicated, the intra-day high and low sale prices for our common stock, as
reported by the New York Stock Exchange.
High
Low
2011:
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$33.63
34.78
27.21
30.73
$22.66
22.13
12.81
15.14
2010:
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10.13
14.79
15.41
23.69
$ 6.87
9.26
8.20
14.46
As of January 1, 2012, there were approximately 89 holders of record of our common stock. The number of
beneficial owners is substantially greater than the number of record holders because a large portion of our
common stock is held of record in broker “street names.”
Dividend Policy
Holdings has not paid dividends on its common stock since inception. The payment of any future dividends
or the authorization of stock repurchases or other recapitalizations will be determined by our board of directors in
light of conditions then existing, including earnings, financial condition and capital requirements, financing
agreements, business conditions, stock price and other factors. The terms of certain agreements governing our
outstanding indebtedness contain certain limitations on our ability to move operating cash flows to Holdings and/
or to pay dividends on, or effect repurchases of, our common stock. In addition, under Delaware law, dividends
may only be paid out of surplus or current or prior year’s net profits.
24
Purchases of Equity Securities by the Issuer
The following table provides information about acquisitions of Holdings’ common stock by Holdings during
the fourth quarter of 2011:
Period
Total Number of Shares Purchased
October 1, 2011 to October 31, 2011 . . .
November 1, 2011 to November 30,
2011 . . . . . . . . . . . . . . . . . . . . . . . . . .
December 1, 2011 to December 31,
2011 . . . . . . . . . . . . . . . . . . . . . . . . . .
Total (1) . . . . . . . . . . . . . . . . . . . . . . . .
13,693
Average Price Paid per Share
—
$ —
1,297
$25.10
12,396
$28.44
(1) The shares were withheld by Holdings to satisfy tax withholding obligations upon the vesting of restricted
stock unit awards. These shares were not acquired pursuant to any repurchase plan or program.
As previously announced, our Board announced its intention to authorize a stock buyback of up to $200
million of Holdings’ common stock after closing of the proposed RSC merger. Our current intention is to
complete the stock buyback within six to twelve months after closing.
Equity Compensation Plans
For information regarding equity compensation plans, see Item 12 of this annual report on Form 10-K.
25
Item 6.
Selected Financial Data
The following selected financial data reflects the results of operations and balance sheet data as of and for
the years ended December 31, 2007 to 2011. The data below should be read in conjunction with, and is qualified
by reference to, our Management’s Discussion and Analysis and our consolidated financial statements and notes
thereto contained elsewhere in this report. In December 2006, we entered into a definitive agreement to sell our
traffic control business and, as a result, the operations of our traffic control business are reflected as a
discontinued operation for all periods presented. The financial information presented may not be indicative of our
future performance.
Year Ended December 31,
2011
2010
2009
2008
2007
(in millions, except per share data)
Income statement data:
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,611 $2,237 $2,358 $ 3,267 $3,715
Total cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,713 1,579 1,748 2,149 2,405
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
898
658
610 1,118 1,310
Selling, general and administrative expenses . . . . . . . . . . . . . .
407
367
408
509
598
RSC merger related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
—
—
—
—
Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
34
31
20
—
Charge related to settlement of SEC inquiry . . . . . . . . . . . . . .
—
—
—
14
—
Goodwill impairment charge . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
1,147
—
Non-rental depreciation and amortization . . . . . . . . . . . . . . . .
57
60
57
58
54
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
396
197
114
(630) 658
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
228
255
226
174
187
Interest expense-subordinated convertible debentures, net . . .
7
8
(4)
9
9
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3)
(3)
(1)
—
(116)
Income (loss) from continuing operations before provision
(benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
164
(63) (107) (813) 578
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . .
63
(41)
(47) (109) 215
Income (loss) from continuing operations . . . . . . . . . . . . . . . .
101
(22)
(60) (704) 363
Loss from discontinued operation, net of taxes . . . . . . . . . . . .
—
(4)
(2)
—
(1)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101
(26)
(62) (704) 362
Preferred stock redemption charge . . . . . . . . . . . . . . . . . . . . . .
—
—
—
(239) —
Net income (loss) available to common stockholders . . . . . . .
101
(26)
(62) (943) 369
Basic earnings (loss) per share:
Income (loss) from continuing operations (inclusive of
preferred stock redemption charge) . . . . . . . . . . . . . . . $ 1.62 $ (0.38) $ (0.98) $(12.62) $ 3.61
Loss from discontinued operation . . . . . . . . . . . . . . . . . . .
—
(0.06) (0.04)
—
(0.01)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.62 $ (0.44) $ (1.02) $(12.62) $ 3.60
Diluted earnings (loss) per share:
Income (loss) from continuing operations (inclusive of
preferred stock redemption charge) . . . . . . . . . . . . . . . $ 1.38 $ (0.38) $ (0.98) $(12.62) $ 3.26
Loss from discontinued operation . . . . . . . . . . . . . . . . . . .
—
(0.06) (0.04)
—
(0.01)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.38 $ (0.44) $ (1.02) $(12.62) $ 3.25
2011
2010
December 31,
2009
2008
(in millions)
2007
Balance sheet data:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,143 $3,693 $3,859 $4,191 $5,842
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,987 2,805 2,951 3,199 2,570
Subordinated convertible debentures . . . . . . . . . . . . . . . . . . . . .
55
124
124
146
146
Stockholders’ equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . .
64
(20)
(19)
(29) 2,018
26
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in millions, except per share data and unless otherwise indicated)
Executive Overview
United Rentals is the largest equipment rental company in the world, with an integrated network of
529 rental locations in the United States and Canada. Although the equipment rental industry is highly
fragmented and diverse, we believe that we are well positioned to take advantage of this environment because, as
a larger company, we have more extensive resources and certain competitive advantages. These include a fleet of
rental equipment with a total original equipment cost (“OEC”), based on the initial consideration paid, of $4.3
billion, and a national branch network that operates in 48 states and every Canadian province, and serves 99 of
the largest 100 metropolitan areas in the United States. In addition, our size gives us greater purchasing power,
the ability to provide customers with a broader range of equipment and services, the ability to provide customers
with equipment that is better maintained and therefore more productive and reliable, and the ability to enhance
the earning potential of our assets by transferring equipment among branches to satisfy customer needs.
We offer approximately 3,000 classes of equipment for rent to a diverse customer base that includes
construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government
entities. Our revenues are derived from the following sources: equipment rentals, sales of rental equipment, sales
of new equipment, contractor supplies sales and service and other. In 2011, equipment rental revenues
represented 82 percent of our total revenues.
For the past several years, we have focused on optimizing the profitability of our core rental business
through revenue growth and margin expansion. To achieve this, we have developed a strategy focused on
customer segmentation, rate management, fleet management and disciplined cost control. Additionally, we are
continuing to strengthen our competitiveness through customer service excellence. This strategy calls for a
superior standard of service to customers, often provided through a single point of contact; an increasing
proportion of revenues derived from larger accounts; and a targeted presence in industrial and specialty markets.
Although the economic environment continued to present challenges for both our Company and the U.S.
equipment rental industry in 2011, we succeeded in realizing a number of achievements related to our strategy.
For the full year 2011, compared with 2010, these achievements included:
•
A 6.1 percent increase in rental rates;
•
A 13.4 percent increase in the volume of OEC on rent;
•
A 3.5 percentage point increase in time utilization on a larger fleet;
•
An increase in the proportion of equipment rental revenues derived from National Account customers,
from 31 percent in 2010 to 35 percent in 2011. National Accounts are generally defined as customers
with potential annual equipment rental spend of at least $500,000 or customers doing business in
multiple locations;
•
Continued improvement in customer service management, including an increase in the proportion of
equipment rental revenues derived from accounts that are managed by a single point of contact
from 51 percent in 2010 to 55 percent in 2011. Establishing a single point of contact for our key
accounts helps us to provide customer service management that is more consistent and satisfactory.
Additionally, we expanded our centralized CCC. The CCC, which established a second base of
operations in 2010, handled 10 percent more rental reservations in 2011;
•
The continued optimization of our network of rental locations, including an increase in 2011 of 7, or
9 percent, in the number of our trench safety, power and HVAC rental locations; and
•
A 0.8 percentage point improvement in selling, general and administrative expenses as a percentage of
total revenue.
27
In 2012, we will continue to focus on optimizing our core business through diligent management of the
rental process, the strengthening of our customer service capabilities, and sustained cost efficiencies.
Additionally, we will focus on:
•
Leveraging technology and training to improve rental rate performance and optimize the transportation
of our rental equipment to and from customer jobsites;
•
Further increasing the proportion of our revenues derived from National Accounts and other large
customers through customer segmentation. To the extent that we are successful, we believe that we can
improve our equipment rental gross margin and overall profitability over time, as large accounts tend to
rent equipment for longer periods and can be serviced more cost effectively than short-term
transactional customers;
•
Accelerating our pursuit of opportunities in the industrial marketplace, where we believe our depth of
resources and branch footprint give us a competitive advantage. Additionally, industrial equipment
demand is subject to different cyclical pressures than construction demand, making our aggregate end
markets less volatile; and
•
Further capitalizing on the demand for the higher-margin power and climate control equipment rented
by our trench safety, power and HVAC business.
In 2012, based on our analysis of leading industry forecasts and broader economic indicators, we expect
most of our end markets to continue to recover at a modest pace. Specifically, we estimate that U.S. spending on
private non-residential construction, our primary end market, will show a single-digit percentage increase over
2011.
Proposed Acquisition of RSC
As discussed elsewhere in this report, on December 15, 2011, we entered into a definitive merger agreement
with RSC, pursuant to which we have agreed to acquire RSC in a cash-and-stock transaction that ascribes a total
enterprise value of $4.2 billion to RSC. Total cash consideration is expected to be approximately $1.1 billion and
we anticipate issuing approximately 29 million shares of common stock in the merger. The cash portion of the
merger will be financed through new debt issuances and drawing on current loan facilities. In connection with the
proposed merger, we intend to re-pay the outstanding amounts on RSC’s existing senior secured credit facilities
and senior secured notes due 2017, which totaled $854 as of September 30, 2011, and assume all of RSC’s
remaining $1.4 billion of unsecured debt after such repayment. The proposed merger is subject to approval by
our stockholders and RSC stockholders, regulatory approvals and other mutual conditions of the parties. We
expect the merger to close in the first half of 2012.
Financial Overview
Despite the challenges posed by recent economic and credit market conditions, and as discussed elsewhere
in this report, we succeeded in taking a number of positive actions in 2010 and 2011 related to our capital
structure, and have significantly improved our financial flexibility and liquidity. For instance, most recently, in
October 2011, we amended our ABL facility. The amended facility, which expires on October 13, 2016, provides
for, among other things, an increase in the facility size from $1.36 billion to $1.80 billion, an uncommitted
incremental increase in the size of the facility of up to $500, and generally lower borrowing costs. Additionally,
in September 2011, we amended our accounts receivable securitization facility. The amended facility expires on
September 26, 2012 and may be extended on a 364-day basis by mutual agreement of the Company and the
purchasers under the facility. The amended facility provides for, among other things, a decrease in the facility
size from $325 to $300, adjustments to the receivables subject to purchase, and generally lower borrowing costs.
As of December 31, 2011, we had available liquidity of $972, including cash of $36.
28
Income (loss) from continuing operations. Income (loss) from continuing operations and diluted earnings
(loss) per share from continuing operations for each of the three years in the period ended December 31, 2011
were as follows:
Year Ended December 31,
2011
2010
2009
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings (loss) per share from continuing operations . . . . . . . . . .
$ 101
$1.38
$ (22)
$(0.38)
$ (60)
$(0.98)
Income (loss) from continuing operations and diluted earnings (loss) per share from continuing operations
for each of the three years in the period ended December 31, 2011 include the impacts of the following special
items (amounts presented on an after-tax basis):
Year Ended December 31,
2011
2010
2009
Contribution to
Impact on
Contribution to
Impact on
Contribution to
Impact on
income from diluted earnings
loss from
diluted loss per
loss from
diluted loss per
continuing
per share from
continuing
share from
continuing
share from
operations
continuing
operations
continuing
operations
continuing
(after-tax)
operations
(after-tax)
operations
(after-tax)
operations
RSC merger related
costs (1) . . . . . . . . . . . . . . . .
Restructuring charge (2) . . . . .
(Losses) gains on repurchase/
retirement of debt securities
and subordinated
convertible debentures, and
ABL amendment (3) . . . . . .
Asset impairment
charge (4) . . . . . . . . . . . . . .
$(18)
(12)
$(0.25)
(0.16)
$—
(21)
$ —
(0.34)
$—
(19)
$ —
(0.29)
(3)
(0.04)
(17)
(0.28)
12
0.19
(3)
(0.04)
(6)
(0.09)
(8)
(0.12)
(1) This reflects transaction costs associated with the proposed acquisition of RSC discussed above.
(2) As discussed below (see “Restructuring charge”), this relates to branch closure charges and severance costs.
(3) As discussed below, this reflects (losses) gains on the repurchase/retirement of debt securities and subordinated convertible
debentures, and write-offs of debt issuance costs associated with the October 2011 amendment of our ABL facility.
(4) As discussed in note 5 to our consolidated financial statements, this non-cash charge primarily relates to the impact of
impairing certain rental equipment and leasehold improvement write-offs.
In addition to the matters discussed above, our 2011 performance reflects increased gross profit from
equipment rentals and sales of rental equipment. As discussed below (see “Results of Operations- Income
taxes”), our results for 2010 also include a tax benefit of $41, which equates to an effective tax rate of 65.1
percent.
EBITDA GAAP Reconciliations. EBITDA represents the sum of net income (loss), loss from discontinued
operation, net of taxes, provision (benefit) for income taxes, interest expense, net, interest expense-subordinated
convertible debentures, net, depreciation of rental equipment and non-rental depreciation and amortization.
Adjusted EBITDA represents EBITDA plus the sum of the RSC merger related costs, the restructuring charge
and stock compensation expense, net. These items are excluded from adjusted EBITDA internally when
evaluating our operating performance and allow investors to make a more meaningful comparison between our
core business operating results over different periods of time, as well as with those of other similar companies.
Management believes that EBITDA and adjusted EBITDA, when viewed with the Company’s results under U.S.
generally accepted accounting principles (“GAAP”) and the accompanying reconciliation, provide useful
information about operating performance and period-over-period growth, and provide additional information that
is useful for evaluating the operating performance of our core business without regard to potential distortions.
Additionally, management believes that EBITDA and adjusted EBITDA permit investors to gain an
understanding of the factors and trends affecting our ongoing cash earnings, from which capital investments are
29
made and debt is serviced. However, EBITDA and adjusted EBITDA are not measures of financial performance
or liquidity under GAAP and, accordingly, should not be considered as alternatives to net income (loss) or cash
flow from operating activities as indicators of operating performance or liquidity.
The table below provides a reconciliation between net income (loss) and EBITDA and adjusted EBITDA:
Year Ended December 31,
2011
2010
2009
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operation, net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense—subordinated convertible debentures, net . . . . . . . . . . . . . . . . . .
Depreciation of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-rental depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSC merger related costs (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charge (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation expense, net (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$101
—
63
228
7
423
57
879
19
19
12
$929
$ (26)
4
(41)
255
8
389
60
649
—
34
8
$691
$ (62)
2
(47)
226
(4)
417
57
589
—
31
8
$628
The table below provides a reconciliation between net cash provided by operating activities and EBITDA
and adjusted EBITDA:
Year Ended December 31,
2011
2010
2009
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments for items included in net cash provided by operating activities but
excluded from the calculation of EBITDA:
Loss from discontinued operation, net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred financing costs and original issue discounts . . . . . . . . . .
Gain on sales of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain (loss) on sales of non-rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSC merger related costs (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charge (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation expense, net (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) gain on repurchase/redemption of debt securities and ABL
amendment (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) gain on retirement of subordinated convertible debentures . . . . . . . . . . . . .
Changes in assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for interest, including subordinated convertible debentures . . . . . . . . . .
Cash paid (received) for income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add back:
RSC merger related costs (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charge (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation expense, net (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
(2)
(3)
(4)
$608
$452
$438
—
(22)
66
2
(19)
(19)
(12)
4
(23)
41
—
—
(34 )
(8 )
2
(17)
7
(1)
—
(31)
(8)
(3)
(2)
53
203
24
879
(28 )
—
65
229
(49)
649
7
13
(58)
234
3
589
19
19
12
$929
—
34
8
$691
—
31
8
$628
This reflects transaction costs associated with the proposed acquisition of RSC discussed above.
As discussed below (see “Restructuring charge”), this relates to branch closure charges and severance costs.
Represents non-cash, share-based payments associated with the granting of equity instruments.
As discussed below, this reflects (losses) gains on the repurchase/retirement of debt securities and write-offs
of debt issuance costs associated with the October 2011 amendment of our ABL facility.
30
For the year ended December 31, 2011, EBITDA increased $230, or 35.4 percent, and adjusted EBITDA
increased $238, or 34.4 percent, primarily reflecting increased profit from equipment rentals. For the year ended
December 31, 2011, EBITDA margin increased 4.7 percentage points to 33.7 percent, and adjusted EBITDA
margin increased 4.7 percentage points to 35.6 percent, primarily reflecting increased margins from equipment
rentals and improved selling, general and administrative leverage.
For the year ended December 31, 2010, EBITDA increased $60, or 10.2 percent, and adjusted EBITDA
increased $63, or 10.0 percent, primarily reflecting increased margins from sales of rental equipment and selling,
general and administrative expense reductions. For the year ended December 31, 2010, EBITDA margin
increased 4.0 percentage points to 29.0 percent, and adjusted EBITDA margin increased 4.3 percentage points to
30.9 percent, primarily reflecting increased margins from sales of rental equipment, and improved selling,
general and administrative leverage.
Revenues. Revenues for each of the three years in the period ended December 31, 2011 were as follows:
Year Ended December 31,
2011
2010
2009
Percent Change
2011
2010
Equipment rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of new equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractor supplies sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service and other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,151
208
84
85
83
$1,834
144
78
95
86
$1,830
229
86
121
92
17.3
44.4
7.7
(10.5)
(3.5)
0.2
(37.1)
(9.3)
(21.5)
(6.5)
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,611
$2,237
$2,358
16.7
(5.1)
Equipment rentals include our revenues from renting equipment, as well as related revenues such as the fees
we charge for equipment delivery, fuel, repair or maintenance of rental equipment and damage waivers. Sales of
rental equipment represent our revenues from the sale of used rental equipment. Sales of new equipment
represent our revenues from the sale of new equipment. Contractor supplies sales represent our sales of supplies
utilized by contractors, which include construction consumables, tools, small equipment and safety supplies.
Services and other revenue includes our repair services (including parts sales) as well as the operations of our
subsidiaries that develop and market software for use by equipment rental companies in managing and operating
multiple branch locations.
2011 total revenues of $2.6 billion increased 16.7 percent compared with total revenues of $2.2 billion in
2010. The increase primarily reflects a 17.3 percent increase in equipment rentals, which was primarily due to a
13.4 percent increase in the volume of OEC on rent and a 6.1 percent rental rate increase, and a 44.4 percent
increase in sales of rental equipment, which was primarily due to increased volume, improved pricing and
changes in the mix of equipment sold. Rental rate changes are calculated based on the year over year variance in
average contract rates, weighted by the current period revenue mix.
2010 total revenues of $2.2 billion decreased 5.1 percent compared with total revenues of $2.4 billion in
2009. The decrease primarily reflects a 37.1 percent decline in sales of rental equipment and a 21.5 percent
decline in contractor supplies sales. Equipment rental revenue increased slightly as a 4.3 percent increase in the
volume of OEC on rent was largely offset by a 2.1 percent decrease in rental rates and other. The decline in sales
of rental equipment in 2010 primarily reflects a decline in the volume of equipment sold. The decline in
contractor supplies sales in 2010 reflects a reduction in the volume of supplies sold, partially offset by improved
pricing and product mix driven by our continued focus on higher margin products.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with GAAP. A summary of our significant
accounting policies is contained in note 2 to our consolidated financial statements. In applying many accounting
31
principles, we make assumptions, estimates and/or judgments. These assumptions, estimates and/or judgments
are often subjective and may change based on changing circumstances or changes in our analysis. Material
changes in these assumptions, estimates and/or judgments have the potential to materially alter our results of
operations. We have identified below our accounting policies that we believe could potentially produce
materially different results were we to change underlying assumptions, estimates and/or judgments. Although
actual results may differ from those estimates, we believe the estimates are reasonable and appropriate.
Revenue Recognition. We recognize equipment rental revenue on a straight-line basis. Our rental contract
periods are hourly, daily, weekly or monthly. By way of example, if a customer were to rent a piece of equipment
and the daily, weekly and monthly rental rates for that particular piece were (in actual dollars) $100, $300 and
$900, respectively, we would recognize revenue of $32.14 per day. The daily rate for recognition purposes is
calculated by dividing the monthly rate of $900 by the monthly term of 28 days. As part of this straight-line
methodology, when the equipment is returned, we recognize as incremental revenue the excess, if any, between
the amount the customer is contractually required to pay over the cumulative amount of revenue recognized to
date. In any given accounting period, we will have customers return equipment and be contractually required to
pay us more than the cumulative amount of revenue recognized to date. For instance, continuing the above
example, if the above customer rented a piece of equipment on December 29 and returned it at the close of
business on January 1, we would recognize incremental revenue on January 1 of $171.44 (in actual dollars,
representing the difference between the amount the customer is contractually required to pay and the cumulative
amount recognized to date on a straight-line basis). We record amounts billed to customers in excess of
recognizable revenue as deferred revenue on our balance sheet. We had deferred revenue of $16 and $12 as of
December 31, 2011 and 2010, respectively. Revenues from the sale of rental equipment and new equipment are
recognized at the time of delivery to, or pick-up by, the customer and when collectibility is reasonably assured.
Sales of contractor supplies are also recognized at the time of delivery to, or pick-up by, the customer. Service
revenue is recognized as the services are performed.
Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts. These allowances reflect
our estimate of the amount of our receivables that we will be unable to collect based on historical write-off
experience. Our estimate could require change based on changing circumstances, including changes in the
economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase
or decrease our allowance. Trade receivables that have contractual maturities of one year or less are written-off
when they are determined to be uncollectible based on the criteria necessary to qualify as a deduction for federal
tax purposes. Write-offs of such receivables require management approval based on specified dollar thresholds.
Useful Lives and Salvage Values of Rental Equipment and Property and Equipment. We depreciate rental
equipment and property and equipment over their estimated useful lives, after giving effect to an estimated
salvage value which ranges from zero percent to 10 percent of cost. Costs we incur in connection with
refurbishment programs that extend the life of our equipment are capitalized and amortized over the remaining
useful life of the equipment. The costs incurred under these refurbishment programs were $10, $12 and $33 for
the years ended December 31, 2011, 2010 and 2009, respectively, and are included in purchases of rental
equipment in our consolidated statements of cash flows.
The useful life of an asset is determined based on our estimate of the period over which the asset will
generate revenues; such periods are periodically reviewed for reasonableness. In addition, the salvage value,
which is also reviewed periodically for reasonableness, is determined based on our estimate of the minimum
value we will realize from the asset after such period. We may be required to change these estimates based on
changes in our industry or other changing circumstances. If these estimates change in the future, we may be
required to recognize increased or decreased depreciation expense for these assets.
To the extent that the useful lives of all of our rental equipment were to increase or decrease by one year, we
estimate that our annual depreciation expense would decrease or increase by approximately $42 or $54,
respectively. Similarly, to the extent the estimated salvage values of all of our rental equipment were to increase
32
or decrease by one percentage point, we estimate that our annual depreciation expense would change by
approximately $5. Any change in depreciation expense as a result of a hypothetical change in either useful lives
or salvage values would generally result in a proportional increase or decrease in the gross profit we would
recognize upon the ultimate sale of the asset. To the extent that the useful lives of all of our depreciable property
and equipment were to increase or decrease by one year, we estimate that our annual non-rental depreciation
expense would decrease or increase by approximately $7 or $9, respectively.
Impairment of Long-lived Assets (Excluding Goodwill). We review the recoverability of our long-lived
assets, including rental equipment and property and equipment, when events or changes in circumstances occur
that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment
is based on our ability to recover the carrying value of the asset from the expected future pre-tax cash flows
(undiscounted and without interest charges). If these cash flows are less than the carrying value of such asset, an
impairment loss is recognized for the difference between the estimated fair value and carrying value. During the
years ended December 31, 2011, 2010 and 2009, we recognized asset impairment charges of $4, $9 and $12,
respectively, in our general rentals segment. The 2011 and 2010 impairment charges primarily reflected writeoffs of leasehold improvements and other fixed assets which were recognized in connection with the
consolidation of our branch network discussed below, and are primarily reflected in non-rental depreciation and
amortization in the accompanying consolidated statements of income. The 2009 impairment charge includes
rental fleet impairment of $9 reflected in depreciation of rental equipment in the accompanying consolidated
statements of income, as well as $3 primarily related to leasehold improvement write-offs which are reflected in
non-rental depreciation and amortization in the accompanying consolidated statements of income. The
impairment charges followed from our decision to consolidate our branch network. We have reduced our branch
count by an aggregate of 168 branches between January 1, 2008 (the beginning of the restructuring period
discussed in “Restructuring charge” below) and December 31, 2011. As of December 31, 2011 and 2010, there
were no held-for-sale assets in our consolidated balance sheets.
In addition to the impairment reviews we conduct in connection with branch consolidations and other
changes in the business, each quarter we conduct a review of rental assets with utilization below a specified
threshold. We select these assets, which represented approximately three percent of our total rental assets at
December 31, 2011, as we believe they are at the greatest risk of potential impairment. As part of this impairment
review, we estimate future rental revenues based on current and expected utilization levels, the age of these
assets and their remaining useful lives. Additionally, we estimate when the asset is expected to be removed or
retired from our rental fleet as well as the expected proceeds to be realized upon disposition. Based on our most
recently completed December 31, 2011 quarterly review, there was no impairment associated with these assets.
Income Taxes. We recognize deferred tax assets and liabilities for certain future deductible or taxable
temporary differences expected to be reported in our income tax returns. These deferred tax assets and liabilities
are computed using the tax rates that are expected to apply in the periods when the related future deductible or
taxable temporary difference is expected to be settled or realized. In the case of deferred tax assets, the future
realization of the deferred tax benefits and carryforwards are determined with consideration to historical
profitability, projected future taxable income, the expected timing of the reversals of existing temporary
differences, and tax planning strategies. After consideration of all these factors, we recognize deferred tax assets
when we believe that it is more likely than not that we will realize them. The most significant positive evidence
that we consider in the recognition of deferred tax assets is the expected reversal of cumulative deferred tax
liabilities resulting from book versus tax depreciation of our rental equipment fleet that is well in excess of the
deferred tax assets.
We use a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a
tax return regarding uncertainties in income tax positions. The first step is recognition: we determine whether it is
more likely than not that a tax position will be sustained upon examination, including resolution of any related
appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position
has met the more-likely-than-not recognition threshold, we presume that the position will be examined by the
33
appropriate taxing authority with full knowledge of all relevant information. The second step is measurement: a
tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of
benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that
is greater than 50 percent likely of being realized upon ultimate settlement.
We are subject to ongoing tax examinations and assessments in various jurisdictions. Accordingly, accruals
for tax contingencies are established based on the probable outcomes of such matters. Our ongoing assessments
of the probable outcomes of the examinations and related tax accruals require judgment and could increase or
decrease our effective tax rate as well as impact our operating results.
Reserves for Claims. We are exposed to various claims relating to our business, including those for which
we retain portions of the losses through the application of deductibles and self-insured retentions, which we
sometimes refer to as “self-insurance.” These claims include (i) workers compensation claims and (ii) claims by
third parties for injury or property damage involving our equipment or personnel. These types of claims may take
a substantial amount of time to resolve and, accordingly, the ultimate liability associated with a particular claim
may not be known for an extended period of time. Our methodology for developing self-insurance reserves is
based on management estimates, which incorporate periodic actuarial valuations. Our estimation process
considers, among other matters, the cost of known claims over time, cost inflation and incurred but not reported
claims. These estimates may change based on, among other things, changes in our claims history or receipt of
additional information relevant to assessing the claims. Further, these estimates may prove to be inaccurate due
to factors such as adverse judicial determinations or settlements at higher than estimated amounts. Accordingly,
we may be required to increase or decrease our reserve levels. As discussed below, during the fourth quarters of
2011, 2010 and 2009, we recognized a benefit of $8, a charge of $24 and a charge of $8, respectively, related to
our provision for self-insurance reserves.
Legal Contingencies. We are involved in a variety of claims, lawsuits, investigations and proceedings, as
described in note 15 to our consolidated financial statements and elsewhere in this report. We determine whether
an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can
be reasonably estimated. We assess our potential liability by analyzing our litigation and regulatory matters using
available information. We develop our views on estimated losses in consultation with outside counsel handling
our defense in these matters, which involves an analysis of potential results, assuming a combination of litigation
and settlement strategies. Should developments in any of these matters cause a change in our determination such
that we expect an unfavorable outcome and result in the need to recognize a material accrual, or should any of
these matters result in a final adverse judgment or be settled for a significant amount, they could have a material
adverse effect on our results of operations in the period or periods in which such change in determination,
judgment or settlement occurs.
Results of Operations
As discussed in note 4 to our consolidated financial statements, our reportable segments are general rentals
and trench safety, power and HVAC. The general rentals segment includes the rental of construction, aerial,
industrial and homeowner equipment and related services and activities. The general rentals segment’s customers
include construction and industrial companies, manufacturers, utilities, municipalities and homeowners. The
general rentals segment operates throughout the United States and Canada. The trench safety, power and HVAC
segment includes the rental of specialty construction products and related services. The trench safety, power and
HVAC segment’s customers include construction companies involved in infrastructure projects, municipalities
and industrial companies. This segment operates throughout the United States and in Canada.
As discussed in note 4 to our consolidated financial statements, we aggregate our seven geographic
regions—the Southwest, Gulf, Northwest, Southeast, Midwest, East, and the Northeast Canada- into our general
rentals reporting segment. Historically, there have been variances in the levels of equipment rentals gross
margins achieved by these regions. For instance, for the five year period ended December 31, 2011, certain of
34
our regions had equipment rentals gross margin that varied by between 10 percent and 17 percent from the
equipment rentals gross margin of the aggregated general rentals’ regions over the same period. Although the
margins for these regions exceeded a 10 percent variance level for this five year period, we expect convergence
going forward given management’s focus on cost cutting, improved processes and fleet sharing. Although we
believe aggregating these regions into our general rentals reporting segment for segment reporting purposes is
appropriate, to the extent that the margin variances persist and the equipment rentals gross margins do not
converge, we may be required to disaggregate the regions into separate reporting segments. Any such
disaggregation would have no impact on our consolidated results of operations.
These segments align our external segment reporting with how management evaluates and allocates
resources. We evaluate segment performance based on segment operating results. Our revenues, operating
results, and financial condition fluctuate from quarter to quarter reflecting the seasonal rental patterns of our
customers, with rental activity tending to be lower in the winter.
Revenues by segment were as follows:
General
rentals
Trench safety,
power and HVAC
Total
$198
7
7
6
4
$2,151
208
84
85
83
$2,389
$222
$2,611
Year Ended December 31, 2010
Equipment rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,693
Sales of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
134
Sales of new equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
72
Contractor supplies sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89
Service and other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
83
$141
10
6
6
3
$1,834
144
78
95
86
$2,071
$166
$2,237
Year Ended December 31, 2009
Equipment rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,700
Sales of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
218
Sales of new equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
81
Contractor supplies sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
114
Service and other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89
$130
11
5
7
3
$1,830
229
86
121
92
$156
$2,358
Year Ended December 31, 2011
Equipment rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,953
Sales of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
201
Sales of new equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77
Contractor supplies sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79
Service and other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,202
Equipment rentals. 2011 equipment rentals of $2.2 billion increased $317, or 17.3 percent, as compared to
2010, primarily reflecting a 13.4 percent increase in the volume of OEC on rent and a 6.1 percent rental rate
increase. Equipment rentals represented 82 percent of total revenues in 2011. On a segment basis, equipment
rentals represented 82 percent and 89 percent of total revenues for general rentals and trench safety, power and
HVAC, respectively. General rentals equipment rentals increased $260, or 15.4 percent, primarily reflecting an
increase in the volume of OEC on rent and increased rental rates. Trench safety, power and HVAC equipment
rentals increased $57, or 40.4 percent, primarily reflecting an increase in the volume of OEC on rent. Trench
safety, power and HVAC average OEC for 2011 increased 47 percent as compared to 2010, including the impact
of the acquisitions described below (see “Acquisitions”). The increases in equipment rentals and average OEC
reflect our strategic focus on the higher margin power and temperature control equipment rented by the trench
safety, power and HVAC segment.
35
2010 equipment rentals of $1.83 billion were flat with 2009 as a 4.3 percent increase in the volume of OEC
on rent was largely offset by a 2.1 percent decrease in rental rates and other. Equipment rentals represented 82
percent of total revenues in 2010. On a segment basis, equipment rentals represented 82 percent and 85 percent
of total revenues for general rentals and trench safety, power and HVAC, respectively. General rentals equipment
rentals decreased slightly as an increase in the volume of OEC on rent and the favorable impact of currency were
offset by a decrease in rental rates and other. Trench safety, power and HVAC equipment rentals increased $11,
or 8.5 percent, primarily reflecting a 10.2 percent increase in the volume of OEC on rent partially offset by a 3.8
percent decrease in rental rates.
Sales of rental equipment. For the three years in the period ended December 31, 2011, sales of rental
equipment represented approximately 8 percent of our total revenues. Our general rentals segment accounted for
substantially all of these sales. 2011 sales of rental equipment of $208 increased $64, or 44.4 percent, from 2010
primarily reflecting increased volume, improved pricing and changes in the mix of equipment sold. 2010 sales of
rental equipment of $144 declined $85, or 37.1 percent, from 2009 primarily reflecting a decline in the volume of
equipment sold.
Sales of new equipment. For the three years in the period ended December 31, 2011, sales of new equipment
represented approximately 3 percent of our total revenues. Our general rentals segment accounted for
substantially all of these sales. 2011 sales of new equipment of $84 increased $6, or 7.7 percent, from 2010
primarily reflecting changes in the mix of equipment sold and improved pricing. 2010 sales of new equipment of
$78 declined $8, or 9.3 percent, from 2009 reflecting volume declines.
Sales of contractor supplies. For the three years in the period ended December 31, 2011, sales of contractor
supplies represented approximately 4 percent of our total revenues. Our general rentals segment accounted for
substantially all of these sales. 2011 sales of contractor supplies of $85 decreased $10, or 10.5 percent, from 2010
reflecting a reduction in the volume of supplies sold, partially offset by improved pricing and product mix. 2010
sales of contractor supplies of $95 declined $26, or 21.5 percent, from 2009 reflecting a reduction in the volume
of supplies sold, partially offset by improved pricing and product mix.
Service and other revenues. For the three years in the period ended December 31, 2011, service and other
revenues represented approximately 4 percent of our total revenues. Our general rentals segment accounted for
substantially all of these sales. 2011 service and other revenues of $83 decreased $3, or 3.5 percent, from 2010
primarily reflecting decreased software license and related revenues. 2010 service and other revenues of $86
decreased $6, or 6.5 percent, from 2009 primarily reflecting reduced revenues from service labor and parts sales,
partially offset by increased software license and related revenues.
Fourth Quarter 2011 Items. In the fourth quarter of 2011, we recognized $19 of acquisition-related costs
associated with the proposed RSC merger. Additionally, during the quarter, we closed 18 branches and
recognized restructuring charges of $14. During the quarter, we also recognized a benefit of $8 in cost of
equipment rentals, excluding depreciation related to our provision for self-insurance reserves. During the quarter,
we also recognized asset impairment charges of $3 which are primarily reflected in non-rental depreciation and
amortization and principally relate to write-offs of leasehold improvements and other fixed assets in connection
with the consolidation of our branch network discussed below. In the quarter, we also purchased an aggregate of
$32 of QUIPS for $32. In connection with this transaction, we retired $32 principal amount of our subordinated
convertible debentures and recognized a loss of $1 in interest expense-subordinated convertible debentures, net,
reflecting the write-off of capitalized debt issuance costs. Interest expense, net for the fourth quarter of 2011 also
includes a loss of $3 reflecting write-offs of debt issuance costs associated with the amendment of our ABL
facility discussed below.
Fourth Quarter 2010 Items. In the fourth quarter of 2010, we repurchased and retired an aggregate of $814
principal amount of our outstanding 7 3⁄ 4 percent Senior Subordinated Notes due 2013, 7 percent Senior
Subordinated Notes due 2014 and 1 7⁄ 8 percent Convertible Senior Subordinated Notes due 2023. Interest
expense, net for the fourth quarter of 2010 includes a charge of $25, representing the difference between the net
36
carrying amount of these securities and the total purchase price of $827. The $25 charge includes a $4 write-off
of a previously terminated derivative transaction. During the quarter, we also recognized a charge of $24 related
to our provision for self-insurance reserves, comprised of $18 recorded in cost of equipment rentals, excluding
depreciation, and $6 recorded in discontinued operation. The charge reflected recent adverse experience in our
portfolio of automobile and general liability claims, as well as worker’s compensation claims. The discontinued
operation component of the charge is reflected net of taxes in our consolidated statements of income.
Additionally, during the quarter, we recognized restructuring charges of $15 related to the closure of 22 branches
and reductions in headcount of approximately 100. During the quarter, we also recognized asset impairment
charges of $6 which are primarily reflected in non-rental depreciation and amortization and principally relate to
write-offs of leasehold improvements and other fixed assets in connection with the consolidation of our branch
network discussed above. Additionally, the income tax provision (benefit) for the quarter includes a benefit of $7
related to a correction of a deferred tax asset recognized in prior periods.
Fourth Quarter 2009 Items. In the fourth quarter of 2009, we repurchased and retired an aggregate of $429
principal amount of our outstanding 6 1⁄ 2 percent Senior Notes due 2012 and 14 percent Senior Notes due 2014.
Interest expense, net for the fourth quarter of 2009 includes a charge of $9, representing the difference between
the net carrying amount of these securities and the total purchase price of $430. Additionally, during the quarter,
we recognized restructuring charges of $6 related to the closure of 13 branches and reductions in headcount of
approximately 400. During the quarter, we also recognized asset impairment charges of $3. These asset
impairment charges include $2 reflected in depreciation of rental equipment, and $1 primarily related to
leasehold improvement write-offs which are reflected in non-rental depreciation and amortization. During the
quarter, we also recognized a charge of $8 reflecting recent experience related to our provision for self-insurance
reserves, comprised of $4 recorded in cost of equipment rentals, excluding depreciation, and $4 recorded in
discontinued operation. The discontinued operation component of the charge is reflected net of taxes in our
consolidated statements of income. Additionally, during the quarter, we recognized a benefit of $3 primarily
relating to vacation forfeitures, comprised of $2 recorded in cost of equipment rentals, excluding depreciation,
and $1 recorded in selling, general and administrative expenses.
Segment Operating Income. Segment operating income and operating margin for each of the three years in
the period ended December 31, 2011 were as follows:
General
rentals
Trench safety,
power and HVAC
Total
2011
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 377
15.8%
$ 57
25.7%
$ 434
16.6%
$ 199
9.6%
$ 32
19.3%
$ 231
10.3%
$ 123
5.6%
$ 22
14.1%
$ 145
6.1%
2010
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The following is a reconciliation of segment operating income to total Company operating income:
2011
2010
2009
Total segment operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated RSC merger related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$434 $231 $145
(19) —
—
(19) (34) (31)
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$396
37
$197
$114
General rentals. For the three years in the period ended December 31, 2011, general rentals accounted for
approximately 86 percent of our total operating income, excluding the unallocated items in the reconciliation
above. This contribution percentage is consistent with general rentals’ revenue contribution over the same period.
General rentals’ operating income in 2011 increased $178 and operating margin increased 6.2 percentage points,
primarily reflecting increased gross margins from equipment rentals and sales of rental equipment. General
rentals’ operating income in 2010 increased $76 and operating margin increased 4.0 percentage points, primarily
reflecting increased gross margins from sales of rental equipment and selling, general and administrative expense
reductions.
Trench safety, power and HVAC. For the year ended December 31, 2011, operating income increased by
$25 and operating margin increased by 6.4 percentage points from 2010, reflecting increased gross margins from
equipment rentals and improved selling, general and administrative leverage. The 2011 improvements in
operating income also reflect our strategic focus on the higher margin power and temperature control equipment
rented by the trench safety, power and HVAC segment. Trench safety, power and HVAC average OEC for 2011
increased 47 percent, as compared to 2010, including the impact of the acquisitions described below (see
“Acquisitions”). Operating income in 2010 increased by $10 and operating margin increased by 5.2 percentage
points from 2009, reflecting increased gross margins from equipment rentals and improved selling, general and
administrative leverage.
Gross Margin. Gross margins by revenue classification were as follows:
Year Ended December 31,
2011
2010
2009
Total gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of new equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractor supplies sales . . . . . . . . . . . . . . . . . . . . . . . . . .
Service and other revenues . . . . . . . . . . . . . . . . . . . . . . . .
34.4%
34.2%
31.7%
20.2%
31.8%
62.7%
29.4%
28.4%
28.5%
16.7%
30.5%
62.8%
25.9%
27.5%
3.1%
15.1%
26.4%
59.8%
2011 gross margin of 34.4 percent increased 5.0 percentage points as compared to 2010, primarily reflecting
increased gross margins from equipment rentals and sales of rental equipment. Equipment rentals gross margin
increased 5.8 percentage points, primarily reflecting a 6.1 percent rental rate increase and a 3.5 percentage point
increase in time utilization, which is calculated by dividing the amount of time equipment is on rent by the
amount of time we have owned the equipment, partially offset by increases in certain variable costs (such as
repairs and maintenance) associated with higher rental volume. Compensation costs also increased due to
increased profit sharing associated with improved profitability. Additionally, as described above (see “Fourth
Quarter 2011 Items” and “Fourth Quarter 2010 Items”), cost of equipment rentals for the year ended
December 31, 2011 included an insurance benefit of $8 as compared to an insurance charge of $18 in 2010. For
the years ended December 31, 2011 and 2010, time utilization was 69.1 percent and 65.6 percent, respectively.
The 3.2 percentage point increase in gross margins from sales of rental equipment primarily reflects improved
pricing. Gross margins from sales of rental equipment may change in future periods if the mix of the channels
(primarily retail and auction) that we use to sell rental equipment changes.
2010 gross margin of 29.4 percent increased 3.5 percentage points as compared to 2009, primarily reflecting
increased gross margins from equipment rentals and sales of rental equipment. Equipment rentals gross margin
increased 0.9 percentage points, primarily reflecting a 4.9 percentage point increase in time utilization, a $28
reduction in depreciation due to a 3.2 percent decrease in average fleet size, on an original equipment cost basis,
the impact of a $9 asset impairment charge related to certain rental equipment recognized in 2010, and savings
realized from ongoing cost saving initiatives, partially offset by a 2.1 percent rental rate decline and increases in
certain variable costs (including repairs and maintenance, fuel and delivery) associated with higher rental
38
volume. For the years ended December 31, 2010 and 2009, time utilization was 65.6 percent and 60.7 percent,
respectively. The 25.4 percentage point increase in gross margins from sales of rental equipment primarily
reflects a higher proportion of retail sales, which yield higher margins, in 2010.
Selling, general and administrative (“SG&A”) expenses. SG&A expense information for each of the three
years in the period ended December 31, 2011 was as follows:
Year Ended December 31,
2011
2010
2009
Total SG&A expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SG&A expense as a percentage of revenue . . . . . . . . . . . . . . . . . .
$ 407
$ 367
$ 408
15.6% 16.4% 17.3%
SG&A expense primarily includes sales force compensation, information technology costs, third party
professional fees, advertising and marketing expenses, management salaries, bad debt expense and clerical and
administrative overhead.
2011 SG&A expense of $407 increased $40 as compared to 2010. The increase in SG&A primarily reflects
increased commissions and bonuses associated with improved profitability. As a percentage of revenue, SG&A
expense improved by 0.8 percentage points year over year.
2010 SG&A expense of $367 decreased $41 as compared to 2009 and improved by 0.9 percentage points as
a percentage of revenue. The decline in SG&A reflects the benefits we realized from our cost-saving initiatives,
including reduced compensation costs, professional fees and advertising expenses.
RSC merger related costs. As discussed above, on December 15, 2011, we entered into a definitive merger
agreement with RSC, pursuant to which we have agreed to acquire RSC in a cash-and-stock transaction that
ascribes a total enterprise value of $4.2 billion to RSC. The year ended December 31, 2011 includes acquisitionrelated costs of $19 associated with the proposed merger, primarily related to financial and legal advisory fees.
Additional merger related costs are expected to be incurred in 2012, and only a portion of such costs are expected
to be capitalized.
Restructuring charge. For the years ended December 31, 2011, 2010 and 2009, restructuring charges of
$19, $34 and $31, respectively, primarily reflect branch closure charges due to continuing lease obligations at
vacant facilities, and severance costs associated with headcount reductions. Between January 1, 2008 (the
beginning of the restructuring period) and December 31, 2011, we reduced the number of our branches by 168, or
24.1 percent, and reduced our headcount by approximately 3,400, or 31.2 percent. We believe that the
restructuring activity is substantially complete as of December 31, 2011. See note 5 to our consolidated financial
statements for additional information.
Non-rental depreciation and amortization for each of the three years in the period ended December 31,
2011 was as follows:
Year Ended December 31,
2011
2010
2009
Non-rental depreciation and amortization . . . . . . . . . . . . . . . . . . . .
$57
$60
$57
Non-rental depreciation and amortization primarily includes (i) depreciation expense associated with
equipment that is not offered for rent (such as computers and office equipment) and amortization expense
associated with leasehold improvements as well as (ii) the amortization of other intangible assets. Our other
intangible assets primarily consist of customer relationships and non-compete agreements.
39
Interest expense, net for each of the three years in the period ended December 31, 2011 was as follows:
Year Ended December 31,
2011
2010
2009
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$228
$255
$226
Interest expense, net for the year ended December 31, 2011 decreased by $27, or 11 percent. Interest
expense, net for the year ended December 31, 2011 includes a loss of $3 primarily related to write-offs of debt
issuance costs associated with the amendment of our ABL facility discussed below. Interest expense, net for the
year ended December 31, 2010 includes a loss of $28 related to repurchases or redemptions of $1,273 principal
amounts of our outstanding debt. Excluding the impact of these losses, interest expense, net decreased slightly as
the impact of a slight increase in average outstanding debt was offset by the impact of lower interest rates.
Interest expense, net for the year ended December 31, 2010 increased by $29, or 13 percent. Interest expense, net
for the years ended December 31, 2010 and 2009 includes a loss of $28 and a gain of $7, respectively, related to
repurchases or redemptions of $1,273 and $919 principal amounts of our outstanding debt, respectively.
Excluding the impact of these gains/losses, interest expense, net decreased slightly as the impact of lower
average outstanding debt was partially offset by the impact of higher interest rates.
Interest expense—subordinated convertible debentures, net for each of the three years in the period ended
December 31, 2011 was as follows:
Year Ended December 31,
2011
2010
2009
Interest expense-subordinated convertible debentures, net . . . . . . .
$7
$8
$(4)
As discussed further in note 13 to our consolidated financial statements, the subordinated convertible
debentures included in our consolidated balance sheets reflect the obligation to our subsidiary trust that has
issued Quarterly Income Preferred Securities (“QUIPS”). This subsidiary is not consolidated in our financial
statements because we are not the primary beneficiary of the trust. As of December 31, 2011 and 2010, the
aggregate amount of subordinated convertible debentures outstanding was $55 and $124, respectively. Interest
expense- subordinated convertible debentures, net for 2011 includes a $2 loss recognized in connection with the
simultaneous purchase of $69 of QUIPS and retirement of $69 principal amount of our subordinated convertible
debentures. Interest expense- subordinated convertible debentures, net for 2009 included a $13 gain recognized
in connection with the simultaneous purchase of $22 of QUIPS and retirement of $22 principal amount of our
subordinated convertible debentures.
Other income, net for each of the three years in the period ended December 31, 2011 was as follows:
Year Ended December 31,
2011
2010
2009
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(3)
$(3)
$(1)
As discussed further in note 10 to our consolidated financial statements, other income, net for the year
ended December 31, 2011 includes (i) a gain of $4 associated with foreign currency forward contracts and (ii) a
loss of $4 associated with the revaluation of certain Canadian dollar denominated intercompany loans. Other
income, net for the year ended December 31, 2010 includes (i) a gain of $13 associated with foreign currency
forward contracts and (ii) a loss of $13 associated with the revaluation of certain Canadian dollar denominated
intercompany loans.
40
Income taxes. The following table summarizes our continuing operations provision (benefit) for income
taxes and the related effective tax rates for each respective period:
Year Ended December 31,
2011
2010
2009
Income (loss) from continuing operations before benefit for income taxes . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 164 $ (63) $(107)
63
(41)
(47)
38.4% 65.1% 43.9%
(1) A detailed reconciliation of the effective tax rates to the U.S. federal statutory income tax rate is included in
note 14 to our consolidated financial statements.
The differences between the effective tax rates of 38.4 percent, 65.1 percent, and 43.9 percent and the U.S.
federal statutory income tax rate of 35.0 percent for 2011, 2010, and 2009, respectively, relate primarily to state
taxes and certain nondeductible charges and other items, and the geographical mix of income between U.S. and
foreign and state operations. The 2011 provision reflects the non-deductibility of certain costs associated with the
proposed RSC acquisition. The 2010 income tax benefit includes a benefit of $7 related to a correction of a
deferred tax asset recognized in prior periods. Our effective income tax rate will change based on discrete events
(such as audit settlements) as well as other factors, including the geographical mix of income before taxes and
the related tax rates in those jurisdictions.
Balance sheet. Accounts receivable, net increased by $87, or 23.1 percent, from December 31, 2010 to
December 31, 2011 primarily due to increased business activity. Prepaid expenses and other assets increased by
$38, or 102.7 percent, from December 31, 2010 to December 31, 2011 primarily due to increased amounts due
from certain vendors related to increased capital expenditures and cash placed in escrow related to the
acquisitions described below (see “Acquisitions”). Goodwill and other intangible assets, net increased by $145,
or 63.9 percent, from December 31, 2010 to December 31, 2011 primarily due to the acquisitions described
below. Accounts payable increased by $74, or 56.1 percent, from December 31, 2010 to December 31, 2011
primarily due to increased capital expenditures and increased business activity. Accrued expenses and other
liabilities increased by $55, or 26.4 percent, from December 31, 2010 to December 31, 2011 primarily due to an
increase in incentive compensation associated with improved profitability, and increases in professional fees and
other expenses associated with the proposed RSC merger and the acquisitions described below.
Acquisitions. During 2011, we completed the acquisitions of Venetor Group (“Venetor”), a seven location
equipment rental company in Canada located in the province of Ontario, GulfStar Rental Solutions, LP
(“GulfStar”), a three location power and HVAC (“heating, ventilating and air conditioning”) equipment rental
company located in Texas and Louisiana, Ontario Laser Rentals Ltd. (“Ontario Laser”), a two location trench
safety equipment rental company in Canada located in the province of Ontario, and Blue Mountain Equipment
Rental Corporation (“Blue Mountain”), a company primarily focused on the industrial segment with three
locations in Pennsylvania and West Virginia. Venetor, GulfStar, Ontario Laser and Blue Mountain had annual
revenues of approximately $50, $15, $20 and $40, respectively.
Liquidity and Capital Resources.
Liquidity and Capital Markets Activity. We manage our liquidity using internal cash management practices,
which are subject to (i) the policies and cooperation of the financial institutions we utilize to maintain and
provide cash management services, (ii) the terms and other requirements of the agreements to which we are a
party and (iii) the statutes, regulations and practices of each of the local jurisdictions in which we operate.
During 2011, we purchased an aggregate of $69 of QUIPS for $68. In connection with this transaction, we
retired $69 principal amount of our subordinated convertible debentures and recognized a loss of $2, inclusive of
the write-off of capitalized debt issuance costs. This loss is reflected in interest expense-subordinated convertible
41
debentures, net in our consolidated statements of income. During 2011, we also recognized a loss of less than $1
associated with the conversion of $5 of our 4 percent Convertible Senior Notes. This loss is reflected in interest
expense, net in our consolidated statements of income.
As discussed in note 12 to the consolidated financial statements, in September 2011, we amended our
accounts receivable securitization facility. The amended facility expires on September 26, 2012 and may be
extended on a 364-day basis by mutual agreement of the Company and the purchasers under the facility. The
amended facility provides for, among other things, a decrease in the facility size from $325 to $300, adjustments
to the receivables subject to purchase, and generally lower borrowing costs. As discussed in note 12 to our
consolidated financial statements, in October 2011, we amended our ABL facility. The amended facility, which
expires on October 13, 2016, provides for, among other things, an increase in the facility size from $1.36 billion
to $1.80 billion, an uncommitted incremental increase in the size of the facility of up to $500, and generally
lower borrowing costs. We recognized a loss of $3 in interest expense, net in our consolidated statements of
income in connection with the amendment of our ABL facility.
Total debt at December 31, 2011 increased by $182, or 6.5 percent, as compared to December 31, 2010,
primarily due to additional borrowings used to finance capital expenditures and the Company’s acquisitions.
Current maturities of long-term debt at December 31, 2011 primarily reflect $255 of borrowings under our
accounts receivable securitization facility and $129 of 4 percent Convertible Senior Notes. The 4 percent
Convertible Senior Notes mature in 2015, but are reflected as short-term debt because they are convertible at
December 31, 2011.
Our principal existing sources of cash are cash generated from operations and from the sale of rental
equipment and borrowings available under the ABL facility and accounts receivable securitization facility. As of
December 31, 2011, we had (i) $929 of borrowing capacity, net of $50 of letters of credit, available under the
ABL facility, (ii) $7 of borrowing capacity available under our accounts receivable securitization facility and
(iii) cash and cash equivalents of $36. Cash equivalents at December 31, 2011 consist of direct obligations of
financial institutions rated A or better. We believe that our existing sources of cash will be sufficient to support
our existing operations over the next 12 months.
As of December 31, 2011, $810 and $255 were outstanding under the ABL facility and the accounts
receivable securitization facility, respectively. The interest rates applicable to the ABL facility and the accounts
receivable securitization facility at December 31, 2011 were 2.4 percent and 0.9 percent, respectively. During the
year ended December 31, 2011, the monthly average amounts outstanding under the ABL facility and the
accounts receivable securitization facility, including both the former facilities and the amended facilities, were
$707 and $230, respectively, and the weighted-average interest rates thereon were 3.1 percent and 1.4 percent,
respectively. The maximum month-end amounts outstanding under the ABL facility and the accounts receivable
securitization facility, including both the former facilities and the amended facilities, during the year ended
December 31, 2011 were $810 and $276, respectively. The amount outstanding at year-end under the ABL
facility exceeded the average amount outstanding during the year primarily due to additional borrowings used to
finance capital expenditures and the Company’s acquisitions.
We expect that our principal needs for cash relating to our operations over the next 12 months will be to
fund (i) cash consideration payable in the merger with RSC and the repayment of RSC’s senior secured debt,
(ii) operating activities and working capital, (iii) the purchase of rental equipment and inventory items offered for
sale, (iv) payments due under operating leases, (v) debt service, and (vi) other acquisitions. We plan to fund such
cash requirements from our existing sources of cash and, in the case of the cash consideration for the RSC
acquisition and the repayment of RSC’s senior secured debt, the incurrence of new debt. In addition, we may
seek additional financing through the securitization of some of our real estate, the use of additional operating
leases or other financing sources as market conditions permit. For information on the scheduled principal and
interest payments coming due on our outstanding debt and on the payments coming due under our existing
operating leases, see “Certain Information Concerning Contractual Obligations.”
42
To access the capital markets, we rely on credit rating agencies to assign ratings to our securities as an
indicator of credit quality. Lower credit ratings generally result in higher borrowing costs and reduced access to
debt capital markets. Credit ratings also affect the costs of derivative transactions, including interest rate and
foreign currency derivative transactions. As a result, negative changes in our credit ratings could adversely
impact our costs of funding. Our credit ratings as of January 23, 2012 were as follows:
Moody’s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Standard & Poor’s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fitch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Rating
Outlook
B2
B
B
Stable
Positive
Stable
A security rating is not a recommendation to buy, sell or hold securities. There is no assurance that any
rating will remain in effect for a given period of time or that any rating will not be revised or withdrawn by a
rating agency in the future.
The amount of our future capital expenditures will depend on a number of factors, including general
economic conditions and growth prospects. We expect that we will fund such expenditures from cash generated
from operations, proceeds from the sale of rental and non-rental equipment and, if required, borrowings available
under the ABL facility and accounts receivable securitization facility. Our gross and net rental capital
expenditures increased significantly in 2011 relative to 2010. Net rental capital expenditures (defined as
purchases of rental equipment less the proceeds from sales of rental equipment) were $566 and $202 in 2011 and
2010, respectively. We expect our gross and net rental capital expenditures to increase significantly in 2012
relative to 2011.
Loan Covenants and Compliance. As of December 31, 2011, we were in compliance with the covenants
and other provisions of the ABL facility, the accounts receivable securitization facility, the senior notes and the
QUIPS. Any failure to be in compliance with any material provision or covenant of these agreements could have
a material adverse effect on our liquidity and operations.
As discussed in note 12 to our consolidated financial statements, in October 2011, we amended our ABL
facility. The only material financial covenants which currently exist relate to the fixed charge coverage ratio and
the senior secured leverage ratio under the ABL facility. Subject to certain limited exceptions specified in the
ABL facility, these covenants will only apply in the future if availability under the ABL facility falls below the
greater of 10 percent of the maximum revolver amount under the amended ABL facility and $150. Since the
October 2011 amendment of the facility and through December 31, 2011, availability under the facility has
exceeded the required threshold and, as a result, these maintenance covenants have been inapplicable. Under our
accounts receivable securitization facility, we are required, among other things, to maintain certain financial tests
relating to: (i) the default ratio, (ii) the delinquency ratio, (iii) the dilution ratio and (iv) days sales outstanding.
As of December 31, 2011, primarily due to losses sustained in prior years, URNA had limited restricted
payment capacity under the most restrictive restricted payment covenants in the indentures governing its
outstanding indebtedness. Although this limited capacity restricts our ability to move operating cash flows to
Holdings, because of certain intercompany arrangements, we do not expect any material adverse impact on
Holdings’ ability to meet its cash obligations.
Sources and Uses of Cash. During 2011, we (i) generated cash from operating activities of $608,
(ii) generated cash from the sale of rental and non-rental equipment of $225 and (iii) received cash from debt
proceeds, net of payments, of $79. We used cash during this period principally to (i) purchase rental and
non-rental equipment of $810 and (ii) purchase other companies for $276. During 2010, we (i) generated cash
from operations of $452, including $55 related to a federal tax refund, and (ii) generated cash from the sale of
rental and non-rental equipment of $151. We used cash during this period principally to (i) purchase rental and
non-rental equipment of $374 and (ii) fund payments, net of proceeds, on debt of $183.
43
Free Cash Flow GAAP Reconciliation
We define “free cash flow” as (i) net cash provided by operating activities less (ii) purchases of rental and
non-rental equipment plus (iii) proceeds from sales of rental and non-rental equipment and excess tax benefits
from share-based payment arrangements, net. Management believes free cash flow provides useful additional
information concerning cash flow available to meet future debt service obligations and working capital
requirements. However, free cash flow is not a measure of financial performance or liquidity under GAAP.
Accordingly, free cash flow should not be considered an alternative to net income (loss) or cash flow from
operating activities as indicators of operating performance or liquidity. The table below provides a reconciliation
between net cash provided by operating activities and free cash flow.
Year Ended December 31,
2011
2010
2009
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of non-rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of non-rental equipment . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based payment arrangements, net . . . . . . . .
$ 608
(774)
(36)
208
17
—
$ 452
(346)
(28)
144
7
(2)
$ 438
(260)
(51)
229
13
(2)
Free cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 23
$ 227
$ 367
Free cash flow for the year ended December 31, 2011 was $23, a decrease of $204 as compared to $227 for
the year ended December 31, 2010. As noted above, net cash provided by operating activities for the year ended
December 31, 2010 included a $55 federal tax refund. Excluding the impact of this refund, free cash flow
decreased primarily due to increased purchases of rental equipment, partially offset by increased net cash
provided by operating activities and increased proceeds from sales of rental equipment. In 2010, free cash flow
decreased $140 compared to 2009. Excluding the impact of the $55 refund noted above, the year-over-year
decrease in free cash flow primarily reflected increased purchases of rental equipment and reduced proceeds
from sales of rental equipment.
Certain Information Concerning Contractual Obligations. The table below provides certain information
concerning the payments coming due under certain categories of our existing contractual obligations as of
December 31, 2011:
2012
2013
2014
2015
2016
Debt and capital leases (1) . . . . . . . . . . . . . . . . . . . . $ 266 $ 7 $ 7 $173 $1,312
Interest due on debt (2) . . . . . . . . . . . . . . . . . . . . . .
194
192
191
190
150
Operating leases (1):
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76
64
53
42
31
Non-rental equipment . . . . . . . . . . . . . . . . . . .
37
17
12
10
6
Service agreements (3) . . . . . . . . . . . . . . . . . . . . . .
12
—
—
—
—
Purchase obligations (4) . . . . . . . . . . . . . . . . . . . . .
791
—
—
—
—
Subordinated convertible debentures (5) . . . . . . . . .
4
4
4
4
4
Total (6) . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,380
$284
$267
$419
$1,503
Thereafter
Total
$1,279
375
$3,044
1,292
73
10
—
—
94
339
92
12
791
114
$1,831
$5,684
(1) The payments due with respect to a period represent (i) in the case of debt and capital leases, the scheduled
principal payments due in such period, and (ii) in the case of operating leases, the minimum lease payments
due in such period under non-cancelable operating leases plus the maximum potential guarantee amounts
associated with some of our non-rental equipment operating leases for which we guarantee that the value of
the equipment at the end of the lease term will not be less than a specified projected residual value. Our
44
(2)
(3)
(4)
(5)
(6)
4 percent Convertible Senior Notes mature in 2015, but are reflected as short-term debt in our consolidated
balance sheet because they are convertible at December 31, 2011. The 4 percent Convertible Senior Notes
are reflected in the table above based on the contractual maturity date in 2015.
Estimated interest payments have been calculated based on the principal amount of debt and the applicable
interest rates as of December 31, 2011. As discussed above, our 4 percent Convertible Senior Notes mature
in 2015, but are reflected as short-term debt in our consolidated balance sheet because they are convertible
at December 31, 2011. Interest on the 4 percent Convertible Senior Notes is reflected in the table above
based on the contractual maturity date in 2015.
These represent service agreements with third parties to provide wireless and network services, refurbish
our aerial equipment and operate the distribution centers associated with contractor supplies.
As of December 31, 2011, we had outstanding purchase orders, which were negotiated in the ordinary
course of business, with our equipment and inventory suppliers. These purchase commitments can be
cancelled by us, generally with 30 days notice and without cancellation penalties. The equipment and
inventory receipts from the suppliers for these purchases and related payments to the suppliers are expected
to be completed throughout 2012. The total purchase obligations increased from $50 at December 31, 2010
to $791 at December 31, 2011, primarily due to improvements in our operating environment and a
consequent increase in capital expenditures. Total capital expenditures increased from $374 in 2010 to $810
in 2011.
Represents principal and interest payments on the $55 of 6 1⁄ 2 percent subordinated convertible debentures
reflected in our consolidated balance sheets as of December 31, 2011.
This information excludes $4 of unrecognized tax benefits, which are discussed further in note 14 to our
consolidated financial statements. It is not possible to estimate the time period during which these
unrecognized tax benefits may be paid to tax authorities.
Certain Information Concerning Off-Balance Sheet Arrangements. We lease real estate and non-rental
equipment under operating leases as a regular business activity. As part of some of our non-rental equipment
operating leases, we guarantee that the value of the equipment at the end of the term will not be less than a
specified projected residual value. If the actual residual value for all equipment subject to such guarantees were
to be zero, then our maximum potential liability under these guarantees would be approximately $10. Under
current circumstances we do not anticipate paying significant amounts under these guarantees; however, we
cannot be certain that changes in market conditions or other factors will not cause the actual residual values to be
lower than those currently anticipated. This potential liability was not reflected on our balance sheet as of
December 31, 2011 or any prior date as we believe that proceeds from the sale of the equipment under these
operating leases would approximate the payment obligation.
Relationship Between Holdings and URNA. Holdings is principally a holding company and primarily
conducts its operations through its wholly owned subsidiary, URNA, and subsidiaries of URNA. Holdings
licenses its tradename and other intangibles and provides certain services to URNA in connection with its
operations. These services principally include: (i) senior management services; (ii) finance and tax-related
services and support; (iii) information technology systems and support; (iv) acquisition-related services; (v) legal
services; and (vi) human resource support. In addition, Holdings leases certain equipment and real property that
are made available for use by URNA and its subsidiaries.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk primarily consists of (i) interest rate risk associated with our variable and fixed
rate debt, (ii) foreign currency exchange rate risk primarily associated with our Canadian operations and
(iii) equity price risk associated with our convertible debt.
Interest Rate Risk. As of December 31, 2011, we had an aggregate of $1,065 of indebtedness that bears
interest at variable rates, comprised of $810 of borrowings under the ABL facility and $255 of borrowings under
our accounts receivable securitization facility. The interest rates applicable to our variable rate debt on
45
December 31, 2011 were (i) 2.4 percent for the ABL facility and (ii) 0.9 percent for the accounts receivable
securitization facility. As of December 31, 2011, based upon the amount of our variable rate debt outstanding,
our annual after-tax earnings would decrease by approximately $7 for each one percentage point increase in the
interest rates applicable to our variable rate debt.
The amount of variable rate indebtedness outstanding under the ABL facility and accounts receivable
securitization facility may fluctuate significantly. For additional information concerning the terms of our variable
rate debt, see note 12 to our consolidated financial statements.
At December 31, 2011, we had an aggregate of $2.0 billion of indebtedness that bears interest at fixed rates,
including our subordinated convertible debentures. A one percentage point decrease in market interest rates as of
December 31, 2011 would increase the fair value of our fixed rate indebtedness by approximately five percent.
For additional information concerning the fair value and terms of our fixed rate debt, see notes 11 (see “Fair
Value of Financial Instruments”) and 12 to our consolidated financial statements.
Currency Exchange Risk. The functional currency for our Canadian operations is the Canadian dollar. As a
result, our future earnings could be affected by fluctuations in the exchange rate between the U.S. and Canadian
dollars. Based upon the level of our Canadian operations during 2011 relative to the Company as a whole, a 10
percent change in this exchange rate would cause our annual after-tax earnings to change by approximately $6.
As discussed in note 10 to our consolidated financial statements, during the year ended December 31, 2011, we
recognized foreign currency losses of $4 associated with the revaluation of certain Canadian dollar denominated
intercompany loans, however these losses were offset by gains of $4 recognized on forward contracts to purchase
Canadian dollars, and the aggregate foreign currency impact of the intercompany loans and forward contracts did
not have a material impact on our earnings. We do not engage in purchasing forward exchange contracts for
speculative purposes.
Equity Price Risk. In connection with the November 2009 4 percent Convertible Notes offering, Holdings
entered into convertible note hedge transactions with option counterparties. The convertible note hedge
transactions cost $26, and decreased additional paid-in capital by $17, net of taxes, in our accompanying
consolidated statements of stockholders’ equity (deficit). The convertible note hedge transactions cover, subject
to anti-dilution adjustments, 15.1 million shares of our common stock. The convertible note hedge transactions
are intended to reduce, subject to a limit, the potential dilution with respect to our common stock upon
conversion of the 4 percent Convertible Notes. The effect of the convertible note hedge transactions is to increase
the effective conversion price to $15.56 per share, equal to an approximately 75 percent premium over the $8.89
closing price of our common stock at issuance. The effective conversion price is subject to change in certain
circumstances, such as if the 4 percent Convertible Notes are converted prior to May 15, 2015. In the event the
market value of our common stock exceeds the effective conversion price per share, the settlement amount
received from such transactions will only partially offset the potential dilution. For example, if, at the time of
exercise of the conversion right, the price of our common stock was $30.00 or $35.00 per share, assuming an
effective conversion price of $15.56 per share, on a net basis, we would issue 7.3 million or 8.4 million shares,
respectively. Based on the price of our common stock during 2011, holders of the 4 percent Convertible Notes
had the right to convert the notes during each of the quarters in 2011 at a conversion price of $11.11 per share of
common stock. During the year ended December 31, 2011, $5 of the 4 percent Convertible Notes were converted
at an effective conversion price of $13.70. Upon conversion of these notes, we received $1 from the hedge
counterparties, and recognized a $1 increase in additional paid-in capital. Additionally, upon conversion of these
notes, additional paid-in capital was reduced by $7, reflecting the excess of the cash transferred upon settlement
over the $5 principal amount of the converted notes. Based on the price of our common stock during the fourth
quarter of 2011, holders of the 4 percent Convertible Notes have the right to convert the notes during the first
quarter of 2012 at a conversion price of $11.11 per share of common stock. Between January 1, 2012 (the
beginning of the first quarter) and January 23, 2012, none of the 4 percent Convertible Senior Notes were
converted.
46
If the total $168 outstanding principal amount of the 4 percent Convertible Notes was converted, the total
cost to settle the notes would be $446, assuming a conversion price of $29.55 (the closing price of our common
stock on December 31, 2011) per share of common stock. The $168 principal amount would be settled in cash,
and the remaining $278 could be settled in cash, shares of our common stock, or a combination thereof, at our
discretion. Based on the December 31, 2011 closing stock price, approximately 9 million shares of stock would
be issued if we settled the entire $278 of conversion value in excess of the principal amount in stock. The total
cost to settle would change approximately $15 for each $1 (actual dollars) change in our stock price. If the full
principal amount was converted at our December 31, 2011 closing stock price, we estimate that we would receive
approximately $40 in either cash or stock from the hedge counterparties, after which the effective conversion
price would be approximately $13.78. Additionally, $22 principal amount of our 1 7⁄ 8 percent Convertible Notes
were outstanding at December 31, 2011. If the total $22 outstanding principal amount of the 1 7⁄ 8 percent
Convertible Notes was converted, the total cost to settle the notes would be $30, assuming a conversion price
of $29.55 (the closing price of our common stock on December 31, 2011) per share of common stock. The total
cost to settle would change approximately $1 for each $1 (actual dollars) change in our stock price. The
1 7⁄ 8 percent Convertible Notes were not convertible at December 31, 2011.
47
Item 8.
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of United Rentals, Inc.
We have audited the accompanying consolidated balance sheets of United Rentals, Inc. as of December 31,
2011 and 2010, and the related consolidated statements of income, stockholders’ equity (deficit), and cash flows
for each of the three years in the period ended December 31, 2011. Our audits also included the financial
statement schedule listed in the Index at Item 15(a). These financial statements and the schedule are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements and the schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of United Rentals, Inc. at December 31, 2011 and 2010, and the consolidated
results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, in
conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), United Rentals, Inc.’s internal control over financial reporting as of December 31, 2011, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated January 25, 2012 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
New York, New York
January 25, 2012
48
UNITED RENTALS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
December 31,
2011
2010
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts of $33 and $29 at December 31,
2011 and 2010, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36
$ 203
464
44
75
104
377
39
37
69
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
723
2,617
366
372
65
725
2,280
393
227
68
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,143
$3,693
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Short-term debt and current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 395
206
263
$ 229
132
208
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated convertible debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
864
2,592
55
470
59
569
2,576
124
385
59
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,040
3,713
Temporary equity (note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock—$0.01 par value, 500,000,000 shares authorized, 62,877,530 and 60,621,338
shares issued and outstanding at December 31, 2011 and 2010, respectively . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39
—
1
487
(499)
75
1
492
(600)
87
Total stockholders’ equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64
(20)
Total liabilities and stockholders’ equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,143
See accompanying notes.
49
$
$3,693
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
Year Ended December 31,
2011
2010
2009
Revenues:
Equipment rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,151 $1,834 $1,830
Sales of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
208
144
229
Sales of new equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
84
78
86
Contractor supplies sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
85
95
121
Service and other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
83
86
92
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,611
2,237
2,358
Cost of revenues:
Cost of equipment rentals, excluding depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of rental equipment sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of new equipment sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of contractor supplies sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of service and other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
992
423
142
67
58
31
924
389
103
65
66
32
910
417
222
73
89
37
Total cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,713
1,579
1,748
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSC merger related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-rental depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
898
407
19
19
57
658
367
—
34
60
610
408
—
31
57
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense—subordinated convertible debentures, net . . . . . . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
396
228
7
(3)
197
255
8
(3)
114
226
(4)
(1)
Income (loss) from continuing operations before provision (benefit) for income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
164
63
(63)
(41)
(107)
(47)
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operation, net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101
—
(22)
(4)
(60)
(2)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 101
$ (26) $ (62)
Basic earnings (loss) per share:
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.62
Loss from discontinued operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
$ (0.38) $ (0.98)
(0.06) (0.04)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1.62
$ (0.44) $ (1.02)
Diluted earnings (loss) per share:
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.38
Loss from discontinued operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
$ (0.38) $ (0.98)
(0.06) (0.04)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
See accompanying notes.
50
$ 1.38
$ (0.44) $ (1.02)
51
See accompanying notes.
$487
$1
Balance at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60
33
8
(17)
(2)
(1)
Issuance of 4 percent Convertible Senior Notes, net . . . . . . . . . . . . . . . . . . . .
Stock compensation expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible note hedge transactions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based payment arrangements, net . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(574)
(62)
$(512)
$(62)
$(11)
$466
Comprehensive
(Loss) Income
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1
Accumulated
Deficit
51
60
Additional
Paid-in
Capital
Balance at January 1, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive (loss) income:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock
Number of
Amount
Shares
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In millions)
UNITED RENTALS, INC.
$67
51
$16
Accumulated
Other
Comprehensive
Income
52
61
Balance at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
See accompanying notes.
1
Stock compensation expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based payment arrangements, net . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1
$492
8
(2)
(1)
$(600)
(26)
$(574)
$(26)
$ (6)
$487
Comprehensive
(Loss) Income
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1
Accumulated
Deficit
20
60
Additional
Paid-in
Capital
Balance at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive (loss) income:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock
Number of
Shares
Amount
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (Continued)
(In millions)
UNITED RENTALS, INC.
$87
20
$67
Accumulated
Other
Comprehensive
Income
53
63
2
$1
$487
12
35
(45)
(7)
$(499)
$101
$ 75
(11)
(1)
$ 87
Accumulated
Other
Comprehensive
Income (Loss)
See accompanying notes.
(1) Reflects a reduction due to our 4 percent Convertible Senior Notes being convertible at December 31, 2011 (an amount equal to the unamortized
portion of the original issue discount was reclassified out of stockholders’ equity (deficit) and is reflected as “temporary equity” in our consolidated
balance sheet as of December 31, 2011), and a reduction reflecting the excess of the cash transferred upon conversion of a portion of the 4 percent
Convertible Senior Notes during the year ended December 31, 2011 over the principal amount of the converted notes, net of cash received from the
option counterparties to our convertible note hedges upon the conversion. See note 12 to our consolidated financial statements for additional detail.
Balance at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of common stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4 percent Convertible Senior Notes (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares repurchased and retired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101
$(600)
$ 89
$492
Comprehensive
Income (Loss)
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1
Accumulated
Deficit
(11)
(1)
61
Additional
Paid-in
Capital
Balance at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss:
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed price diesel swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock
Number of
Amount
Shares
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (Continued)
(In millions)
UNITED RENTALS, INC.
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2011
2010
2009
(In millions)
Cash Flows From Operating Activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred financing costs and original issue discounts . . . . . . . . . . . . . . .
Gain on sales of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on sales of non-rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSC merger related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on repurchase/redemption of debt securities and ABL amendment . . . . . . . .
Loss (gain) on retirement of subordinated convertible debentures . . . . . . . . . . . . . . . . . . .
(Decrease) increase in deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Decrease) increase in accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . .
(26) $
(62)
480
22
(66)
(2)
12
19
19
3
2
39
449
23
(41)
—
8
—
34
28
—
(58)
474
17
(7)
1
8
—
31
(7)
(13)
4
(62)
(3)
(19)
68
(5)
(38)
5
61
4
3
128
16
(36)
(32)
(84)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
608
452
438
Cash Flows From Investing Activities:
Purchases of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of non-rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of non-rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of other companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(774)
(36)
208
17
(276)
(346)
(28)
144
7
—
(260)
(51)
229
13
(25)
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(861)
(223)
(94)
1,892
(1,813)
(16)
35
(7)
3,423
(3,606)
(18)
1
(1)
3,452
(3,658)
(33)
—
(1)
(11)
—
—
(2)
(26)
(2)
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
80
6
(203)
8
(268)
16
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(167)
203
34
169
92
77
Cash Flows From Financing Activities:
Proceeds from debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of debt, including subordinated convertible debentures . . . . . . . . . . . . . . . . . . .
Payments of financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the exercise of common stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares repurchased and retired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid in connection with the 4 percent Convertible Senior Notes and related hedge,
net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based payment arrangements, net . . . . . . . . . . . . . . . . . . .
$
101
$
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
36
$
203
$
169
Supplemental disclosure of cash flow information:
Cash paid for interest, including subordinated convertible debentures . . . . . . . . . . . . . . .
Cash paid (received) for income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
203
24
$
229 $
(49)
234
3
See accompanying notes.
54
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data and unless otherwise indicated)
1.
Organization, Description of Business and Consolidation
United Rentals, Inc. (“Holdings”) is principally a holding company and conducts its operations primarily
through its wholly owned subsidiary, United Rentals (North America), Inc. (“URNA”), and subsidiaries of
URNA. Holdings’ primary asset is its sole ownership of all issued and outstanding shares of common stock of
URNA. URNA’s various credit agreements and debt instruments place restrictions on its ability to transfer funds
to its stockholder. As used in this report, the terms the “Company,” “United Rentals,” “we,” “us,” and “our” refer
to United Rentals, Inc. and its subsidiaries, unless otherwise indicated.
We rent equipment to a diverse customer base that includes construction and industrial companies,
manufacturers, utilities, municipalities, homeowners and others in the United States and Canada. In addition to
renting equipment, we sell new and used rental equipment, as well as related contractor supplies, parts and
service.
During the year ended December 31, 2011, we completed the acquisitions of Venetor Group (“Venetor”), a
seven location equipment rental company in Canada located in the province of Ontario, GulfStar Rental
Solutions, LP (“GulfStar”), a three location power and HVAC (“heating, ventilating and air conditioning”)
equipment rental company located in Texas and Louisiana, Ontario Laser Rentals Ltd. (“Ontario Laser”), a two
location trench safety equipment rental company in Canada located in the province of Ontario, and Blue
Mountain Equipment Rental Corporation (“Blue Mountain”), a company primarily focused on the industrial
segment with three locations in Pennsylvania and West Virginia. Venetor, GulfStar, Ontario Laser and Blue
Mountain had annual revenues of approximately $50, $15, $20 and $40, respectively. Our cash flows for the year
ended December 31, 2011 reflect an aggregate of $276 paid to purchase these companies. The purchase price
allocations for these acquisitions are based on preliminary valuations and are subject to change as we obtain
additional information during each acquisition’s measurement period.
In addition, on December 15, 2011, we entered into a definitive merger agreement with RSC Holdings, Inc.
(“RSC”), pursuant to which we have agreed to acquire RSC in a cash-and-stock transaction that ascribes a total
enterprise value of $4.2 billion to RSC. Total cash consideration paid to holders of RSC common stock is
expected to be approximately $1.1 billion and we anticipate issuing approximately 29 million shares of common
stock in the merger. The cash portion of the merger will be financed through new debt issuances and drawing on
current loan facilities. In connection with the proposed transaction, we intend to re-pay the outstanding amounts
on RSC’s existing senior secured credit facilities and senior secured notes due 2017, which totaled $854 as of
September 30, 2011, and assume all of RSC’s remaining $1.4 billion of unsecured debt after such repayment.
The proposed merger is subject to approval by our stockholders and RSC stockholders, regulatory approvals and
other mutual conditions of the parties. We expect the merger to close in the first half of 2012.
The accompanying consolidated financial statements include our accounts and those of our controlled
subsidiary companies. All significant intercompany accounts and transactions have been eliminated. We
consolidate variable interest entities if we are deemed the primary beneficiary of the entity.
2.
Summary of Significant Accounting Policies
Cash Equivalents
We consider all highly liquid instruments with maturities of three months or less when purchased to be cash
equivalents. Our cash equivalents at December 31, 2011 consist of direct obligations of financial institutions
rated A or better.
55
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts. This allowance reflects our estimate of the amount of our
receivables that we will be unable to collect based on historical write-off experience. Trade receivables that have
contractual maturities of one year or less are written-off when they are determined to be uncollectible based on
the criteria necessary to qualify as a deduction for federal tax purposes. Write-offs of such receivables require
management approval based on specified dollar thresholds.
Inventory
Inventory consists of new equipment, contractor supplies, tools, parts, fuel and related supply items.
Inventory is stated at the lower of cost or market. Cost is determined, depending on the type of inventory, using
either a specific identification, weighted-average or first-in, first-out method.
Rental Equipment
Rental equipment, which includes service and delivery vehicles, is recorded at cost and depreciated over the
estimated useful life of the equipment using the straight-line method. The range of estimated useful lives for
rental equipment is two to 12 years. Rental equipment is depreciated to a salvage value of zero to 10 percent of
cost. Costs we incur in connection with refurbishment programs that extend the life of our equipment are
capitalized and amortized over the remaining useful life of the equipment. The costs incurred under these
refurbishment programs were $10, $12 and $33 for the years ended December 31, 2011, 2010 and 2009,
respectively, and are included in purchases of rental equipment in our consolidated statements of cash flows.
Ordinary repair and maintenance costs are charged to operations as incurred. Repair and maintenance costs are
included in cost of revenues on our consolidated statements of income. Repair and maintenance expense
(including both labor and parts) for our rental equipment was $291, $262 and $256 for the years ended
December 31, 2011, 2010 and 2009, respectively.
Property and Equipment
Property and equipment are recorded at cost and depreciated over their estimated useful lives using the
straight-line method. The range of estimated useful lives for property and equipment is two to 39 years. Ordinary
repair and maintenance costs are charged to expense as incurred. Leasehold improvements are amortized using
the straight-line method over their estimated useful lives or the remaining life of the lease, whichever is shorter.
Business Combinations
We have made a number of acquisitions in the past and may continue to make acquisitions in the future. We
allocate the cost of the acquired enterprise to the assets acquired and liabilities assumed based on their respective
fair values at the date of acquisition. With the exception of goodwill and other intangible assets, long-lived fixed
assets generally represent the largest component of our acquisitions. The long-lived fixed assets that we acquire
are primarily rental equipment, transportation equipment and real estate.
In addition to long-lived fixed assets, we also acquire other assets and assume liabilities. These other assets
and liabilities typically include, but are not limited to, parts inventory, accounts receivable, accounts payable and
other working capital items. Because of their short-term nature, the fair values of these other assets and liabilities
generally approximate the book values reflected on the acquired entities’ balance sheets. However, when
appropriate, we adjust these book values for factors such as collectibility and existence. The intangible assets that
we have acquired are primarily goodwill, customer relationships and non-compete agreements. Goodwill is
calculated as the excess of the cost of the acquired entity over the fair value of the net assets acquired. Customer
relationships and non-compete agreements are valued based on an excess earnings or income approach with
consideration to projected cash flows.
56
Goodwill and the Evaluation of Goodwill Impairment
As discussed above, goodwill represents the excess of cost over the fair value of identifiable net assets of
businesses acquired. We test for goodwill impairment at a regional level. We are required to review our goodwill
for impairment annually as of a scheduled review date; however, if events or circumstances suggest that goodwill
could be impaired, we may be required to conduct an earlier review. The scheduled review date is October 1 of
each year.
Application of the goodwill impairment test requires judgment, including the identification of reporting
units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and
determination of the fair value of each reporting unit. In September 2011, the Financial Accounting Standards
Board (“FASB”) issued guidance that simplified how entities test for goodwill impairment. This guidance
permits entities to first assess qualitative factors to determine whether it is more likely than not that the fair value
of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a
two-step goodwill impairment test. This guidance is effective for annual and interim goodwill impairment tests
performed for fiscal years beginning after December 15, 2011, and early adoption is permitted. As discussed
more fully in note 8 to the consolidated financial statements, we early adopted this guidance for our annual
goodwill impairment test that was conducted as of October 1, 2011.
Other Intangible Assets
Other intangible assets consist of non-compete agreements and customer relationships. The non-compete
agreements are being amortized on a straight-line basis over initial periods ranging from two to five years. The
customer relationships are being amortized on a straight-line basis over initial periods ranging from eight to 12
years.
Long-Lived Assets
Long-lived assets are recorded at the lower of amortized cost or fair value. As part of an ongoing review of
the valuation of long-lived assets, we assess the carrying value of such assets if facts and circumstances suggest
they may be impaired. If this review indicates the carrying value of such an asset may not be recoverable, as
determined by an undiscounted cash flow analysis over the remaining useful life, the carrying value would be
reduced to its estimated fair value.
Translation of Foreign Currency
Assets and liabilities of our Canadian subsidiaries that have a functional currency other than U.S. dollars are
translated into U.S. dollars using exchange rates at the balance sheet date. Revenues and expenses are translated
at average exchange rates effective during the year. Foreign currency translation gains and losses are included as
a component of accumulated other comprehensive income within stockholders’ equity.
Revenue Recognition
Our rental contract periods are hourly, daily, weekly or monthly and we recognize equipment rental revenue
on a straight-line basis. As part of this straight-line methodology, when the equipment is returned, we recognize
as incremental revenue the excess, if any, between the amount the customer is contractually required to pay over
the cumulative amount of revenue recognized to date. We record amounts billed to customers in excess of
recognizable revenue as deferred revenue on our balance sheet. We had deferred revenue of $16 and $12 as of
December 31, 2011 and 2010, respectively. Revenues from the sale of rental equipment and new equipment are
recognized at the time of delivery to, or pick-up by, the customer and when collectibility is reasonably assured.
Sales of contractor supplies are also recognized at the time of delivery to, or pick-up by, the customer. Service
revenue is recognized as the services are performed. Sales tax amounts collected from customers are recorded on
a net basis.
57
Delivery Expense
Equipment rentals include our revenues from fees we charge for equipment delivery. Delivery costs are
charged to operations as incurred, and are included in cost of revenues on our consolidated statements of income.
Advertising Expense
We promote our business through local and national advertising in various media, including trade
publications, yellow pages, the Internet, radio and direct mail. Advertising costs are generally expensed as
incurred. Advertising expense, net of qualified advertising reimbursements, was $0, $2 and $6 for the years
ended December 31, 2011, 2010 and 2009, respectively.
Insurance
We are insured for general liability, workers’ compensation and automobile liability, subject to deductibles
or self-insured retentions per occurrence of $2 for general liability, $1 for workers’ compensation and $2 for
automobile liability as of December 31, 2011 and 2010. Losses within these deductible amounts are accrued
based upon the aggregate liability for reported claims incurred, as well as an estimated liability for claims
incurred but not yet reported. These liabilities are not discounted. The Company is also self-insured for group
medical claims but purchases “stop loss” insurance to protect itself from any one loss exceeding $600,000 (actual
dollars).
Income Taxes
We use the liability method of accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on the differences between financial statement and tax bases of assets and
liabilities and are measured using the tax rates and laws that are expected to be in effect when the differences are
expected to reverse. Recognition of deferred tax assets is limited to amounts considered by management to be
more likely than not to be realized in future periods. The most significant positive evidence that we consider in
the recognition of deferred tax assets is the expected reversal of cumulative deferred tax liabilities resulting from
book versus tax depreciation of our rental equipment fleet that is well in excess of the deferred tax assets.
We use a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a
tax return regarding uncertainties in income tax positions. The first step is recognition: we determine whether it is
more likely than not that a tax position will be sustained upon examination, including resolution of any related
appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position
has met the more-likely-than-not recognition threshold, we presume that the position will be examined by the
appropriate taxing authority with full knowledge of all relevant information. The second step is measurement: a
tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of
benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that
is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions
taken in a tax return and amounts recognized in the financial statements will generally result in one or more of
the following: an increase in a liability for income taxes payable, a reduction of an income tax refund receivable,
a reduction in a deferred tax asset or an increase in a deferred tax liability.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles
(“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Significant estimates impact the calculation of the allowance for
doubtful accounts, depreciation and amortization, income taxes, reserves for claims, loss contingencies
(including legal contingencies) and the fair values of financial instruments. Actual results could materially differ
from those estimates.
58
Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentrations of credit risk include cash and
cash equivalents and accounts receivable. We maintain cash and cash equivalents with high quality financial
institutions. Concentration of credit risk with respect to receivables is limited because a large number of
geographically diverse customers make up our customer base. Our largest customer accounted for less than one
percent of total revenues in each of 2011, 2010, and 2009. Our customer with the largest receivable balance
represented approximately two percent and one percent of total receivables at December 31, 2011 and 2010,
respectively. We manage credit risk through credit approvals, credit limits and other monitoring procedures.
Stock-Based Compensation
We measure stock-based compensation at the grant date based on the fair value of the award and recognize
stock-based compensation expense over the requisite service period. Determining the fair value of stock option
awards requires judgment, including estimating stock price volatility, forfeiture rates and expected option life.
Restricted stock awards are valued based on the fair value of the stock on the grant date and the related
compensation expense is recognized over the service period. Similarly, for time-based restricted stock awards
subject to graded vesting, we recognize compensation cost on a straight-line basis over the requisite service
period. We classify cash flows from tax benefits resulting from tax deductions in excess of the compensation cost
recognized for stock-based awards (“excess tax benefits”) as financing cash flows.
New Accounting Pronouncements
Comprehensive Income. In June and December 2011, the FASB issued guidance on the presentation of
comprehensive income. This guidance eliminates the option to present the components of other comprehensive
income as part of the statement of changes in stockholders’ equity, which is our current presentation, and also
requires presentation of reclassification adjustments from other comprehensive income to net income on the face
of the financial statements. This guidance is effective for fiscal years and interim periods beginning after
December 15, 2011, with the exception of the requirement to present reclassification adjustments from other
comprehensive income to net income on the face of the financial statements, which has been deferred pending
further deliberation by the FASB, and is not expected to have a material effect on our financial condition or
results of operations, though it will change our financial statement presentation.
Goodwill Impairment Testing. In September 2011, the FASB issued guidance that simplified how entities
test for goodwill impairment. This guidance permits entities to first assess qualitative factors to determine
whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis
for determining whether it is necessary to perform a two-step goodwill impairment test. This guidance is
effective for annual and interim goodwill impairment tests performed for fiscal years beginning after
December 15, 2011, and early adoption is permitted. We early adopted this guidance for our annual goodwill
impairment test that was conducted as of October 1, 2011, as discussed in note 8 to the consolidated financial
statements. The adoption of this guidance did not have a material effect on our financial condition or results of
operations.
3.
Discontinued Operation
In December 2006, we entered into a definitive agreement to sell our traffic control business to HTS
Acquisition, Inc. (“HTS”), an entity formed by affiliates of private equity investors Wynnchurch Capital Partners
and Oak Hill Special Opportunities Fund, L.P. The transaction closed in February 2007 and we received net
proceeds of $66. The results of operations of our traffic control business are reported within discontinued
operation in the consolidated statements of income.
As part of the sale, we retained financial responsibility for deductibles and self-insured retentions associated
with casualty insurance programs (workers’ compensation, automobile liability and general liability) covering
59
the traffic control business with respect to claims arising from loss occurrences prior to closing. These liabilities
were not assumed by the purchaser. We are not liable for these types of liabilities for the traffic control business
to the extent they arise subsequent to closing. The aggregate amount of these retained insurance liabilities as of
December 31, 2011 and 2010 was $8 and $12, respectively, and is included in accrued expenses and other
liabilities and other long-term liabilities in the consolidated balance sheets. The 2010 and 2009 after-tax losses of
$4 and $2, respectively, which are reflected in loss from discontinued operation, net of taxes in the
accompanying consolidated statements of income, relate to changes in estimates for these retained insurance
liabilities. 2011 results include a loss of less than $1 related to these retained liabilities.
4.
Segment Information
Our reportable segments are general rentals and trench safety, power and HVAC. The general rentals
segment includes the rental of the following equipment:
•
General construction and industrial equipment, such as backhoes, skid-steer loaders, forklifts,
earthmoving equipment and material handling equipment, which accounted for approximately 41
percent of our total 2011 equipment rental revenue;
•
Aerial work platforms, such as boom lifts and scissor lifts, which accounted for approximately 39
percent of our total 2011 equipment rental revenue; and
•
General tools and light equipment, such as pressure washers, water pumps, generators, heaters and
power tools, which accounted for approximately 8 percent of our total 2011 equipment rental revenue.
The general rentals segment reflects the aggregation of seven geographic regions—the Southwest, Gulf,
Northwest, Southeast, Midwest, East, and the Northeast Canada—and operates throughout the United States and
Canada.
The trench safety, power and HVAC segment includes the rental of specialty construction products such as
the following:
•
Trench safety equipment, such as trench shields, aluminum hydraulic shoring systems, slide rails,
crossing plates, construction lasers and line testing equipment for underground work, which accounted
for approximately 6 percent of our total 2011 equipment rental revenue; and
•
Power and HVAC equipment, such as portable diesel generators, electrical distribution equipment, and
temperature control equipment including heating and cooling equipment, which accounted for
approximately 6 percent of our total 2011 equipment rental revenue.
The trench safety, power and HVAC segment’s customers include construction companies involved in
infrastructure projects, municipalities and industrial companies. This segment operates throughout the United
States and in Canada.
These segments align our external segment reporting with how management evaluates and allocates
resources. We evaluate segment performance based on segment operating results.
The accounting policies for our segments are the same as those described in the summary of significant
accounting policies in note 2. Certain corporate costs, including those related to selling, finance, legal, risk
management, human resources, corporate management and information technology systems, are deemed to be of
an operating nature and are allocated to our segments based on either the actual amount of costs incurred in the
prior year for selling, general and administrative expenses or equipment rental revenue generating activities.
60
The following table sets forth financial information by segment for the years ended December 31, 2011,
2010 and 2009, except for balance sheet information, which is presented as of December 31, 2011 and 2010.
General
rentals
Trench safety,
power and HVAC
Total
$198
7
7
6
4
$2,151
208
84
85
83
2,389
222
2,611
Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . .
448
Segment operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
377
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
739
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,776
32
57
71
$367
480
434
810
$4,143
$141
10
6
6
3
$1,834
144
78
95
86
2,071
166
2,237
Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . .
426
Segment operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
199
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
344
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,458
23
32
30
$235
449
231
374
$3,693
$130
11
5
7
3
$1,830
229
86
121
92
2011
Equipment rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,953
Sales of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
201
Sales of new equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77
Contractor supplies sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79
Service and other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010
Equipment rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,693
Sales of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
134
Sales of new equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
72
Contractor supplies sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89
Service and other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
83
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
Equipment rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,700
Sales of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
218
Sales of new equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
81
Contractor supplies sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
114
Service and other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,202
156
2,358
Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
449
123
$ 295
25
22
$ 16
474
145
$ 311
The following is a reconciliation of segment operating income to total Company operating income:
Year Ended December 31,
2011
2010
2009
Total segment operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated RSC merger related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$434
(19)
(19)
$231
—
(34)
$145
—
(31)
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$396
$197
$114
61
We operate in the United States and Canada. The following table presents geographic area information for
the years ended December 31, 2011, 2010 and 2009, except for balance sheet information, which is presented as
of December 31, 2011 and 2010. All the foreign assets as of December 31, 2011 and 2010 are Canadian, and the
foreign information in the following table primarily relates to Canada.
Domestic
Foreign
Total
Equipment rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of new equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractor supplies sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service and other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,779
180
59
62
64
$372
28
25
23
19
$2,151
208
84
85
83
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,144
467
2,611
Rental equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and other intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,181
338
$ 232
436
28
$140
2,617
366
$ 372
Equipment rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of new equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractor supplies sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service and other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,569
121
59
71
68
$265
23
19
24
18
$1,834
144
78
95
86
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,888
349
2,237
Rental equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and other intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,985
365
$ 182
295
28
$ 45
2,280
393
$ 227
Equipment rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of new equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractor supplies sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service and other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,602
200
70
96
78
$228
29
16
25
14
$1,830
229
86
121
92
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,046
$312
$2,358
2011
2010
2009
5.
Restructuring and Asset Impairment Charges
Over the past several years we have been focused on reducing our operating costs. In connection with this
strategy, and in recognition of the challenging economic environment, we reduced our employee headcount from
approximately 10,900 at December 31, 2007 to approximately 7,500 at December 31, 2011. Additionally, we
reduced our branch network from 697 at December 31, 2007 to 529 at December 31, 2011. The restructuring
charges for the years ended December 31, 2011, 2010 and 2009 include severance costs associated with our
headcount reductions, as well as branch closure charges which principally relate to continuing lease obligations
at vacant facilities.
62
The table below provides certain information concerning our restructuring charges:
Beginning
Reserve Balance
Charged to
Costs and
Expenses (1)
Payments
and Other
Ending
Reserve Balance
$11
2
$24
7
$(15)
(8)
$20
1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2010:
Branch closure charges . . . . . . . . . . . . . . . . . . . . . . . .
Severance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13
$31
$(23)
$21
$20
1
$28
6
$(22)
(5)
$26
2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21
$34
$(27)
$28
Year ended December 31, 2011:
Branch closure charges . . . . . . . . . . . . . . . . . . . . . . . .
Severance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$26
2
$17
2
$(16)
(3)
$27
1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$28
$19
$(19)
$28
Description
Year ended December 31, 2009:
Branch closure charges . . . . . . . . . . . . . . . . . . . . . . . .
Severance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Reflected in our consolidated statements of income as “Restructuring charge.”
We have incurred total restructuring charges between January 1, 2008 and December 31, 2011 of $104,
comprised of $83 of branch closure charges and $21 of severance costs. We believe that the restructuring activity
is complete as of December 31, 2011.
In addition to the restructuring charges discussed above, during the years ended December 31, 2011, 2010
and 2009, we recorded asset impairment charges of $4, $9 and $12, respectively, in our general rentals segment.
The 2011 and 2010 impairment charges are primarily reflected in non-rental depreciation and amortization in the
accompanying consolidated statements of income and principally relate to write-offs of leasehold improvements
and other fixed assets in connection with the consolidation of our branch network discussed above. The 2009
impairment charge includes $9 reflected in depreciation of rental equipment in the accompanying consolidated
statements of income related to certain rental equipment, as well as $3 primarily related to leasehold
improvement write-offs which is reflected in non-rental depreciation and amortization in the accompanying
consolidated statements of income.
6.
Rental Equipment
Rental equipment consists of the following:
December 31,
2011
2010
Rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,209 $ 3,787
(1,592) (1,507)
Rental equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,617
63
$ 2,280
7.
Property and Equipment
Property and equipment consist of the following:
December 31,
2011
2010
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-rental vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 109
223
15
39
123
158
667
(301)
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.
$ 366
$ 112
227
20
39
109
166
673
(280)
$ 393
Goodwill and Other Intangible Assets
We have made acquisitions over the years, principally during the period from 1997 to 2000, which included
the recognition of a significant amount of goodwill. Goodwill is tested for impairment annually or more
frequently if an event or circumstance indicates that an impairment loss may have been incurred.
In September 2011, the FASB issued guidance that simplified how entities test for goodwill impairment.
This guidance permits entities to first assess qualitative factors to determine whether it is more likely than not
that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is
necessary to perform a two-step goodwill impairment test. We early adopted this guidance for our annual
goodwill impairment test that was conducted as of October 1, 2011. In performing the 2011 goodwill impairment
test, we assessed the relevant qualitative factors and concluded that it is more likely than not that the fair values
of our reporting units (our regions) are greater than their carrying amounts. After reaching this conclusion, no
further testing was performed. The qualitative factors we considered included, but were not limited to, general
economic conditions, our outlook for construction activity, our recent and forecasted financial performance and
the price of the Company’s common stock.
The following table presents the changes in the carrying amount of goodwill for each of the three years in
the period ended December 31, 2011:
General rentals
Trench safety,
power and HVAC
Total
Balance at January 1, 2009 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill related to acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation and other adjustments . . . . . . . . . . . . . . . . .
$ 97
1
5
$ 93
—
—
$190
1
5
Balance at December 31, 2009 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation and other adjustments . . . . . . . . . . . . . . . . .
103
2
93
—
196
2
Balance at December 31, 2010 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
105
93
198
Goodwill related to acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation and other adjustments . . . . . . . . . . . . . . . . .
Balance at December 31, 2011 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65
(3)
$167
31
(2)
$122
96
(5)
$289
(1) The total carrying amount of goodwill for all periods in the table above is reflected net of $1,557 of
accumulated impairment charges, which were primarily recorded in our general rentals segment.
64
Other intangible assets primarily consist of customer relationships and non-compete agreements. Intangible
assets were comprised of the following at December 31, 2011 and 2010:
As of December 31, 2011
WeightedGross
Average Remaining
Carrying Accumulated
Amortization Period
Amount
Amortization
Non-compete agreements . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . .
46 months
9 years
$ 30
$121
$25
$43
Net
Amount
$ 5
$78
As of December 31, 2010
WeightedGross
Average Remaining
Carrying
Accumulated
Amortization Period
Amount
Amortization
Non-compete agreements . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . .
27 months
5 years
$25
$64
$24
$36
Net
Amount
$ 1
$28
Our other intangibles assets, net at December 31, 2011 include customer relationships and non-compete
agreements of $56 and $4, respectively, associated with the 2011 acquisitions discussed above (see note 1,
“Organization, Description of Business and Consolidation”). No residual value has been assigned to these
intangible assets. The weighted-average initial amortization periods for the acquired customer relationships and
non-compete agreements are 11.6 years and 55 months, respectively.
Amortization expense for other intangible assets was $8, $7 and $8 for the years ended December 31, 2011,
2010 and 2009, respectively.
As of December 31, 2011, estimated amortization expense for other intangible assets for each of the next
five years and thereafter is as follows:
9.
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12
12
10
9
8
32
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$83
Accrued Expenses and Other Liabilities and Other Long-Term Liabilities
Accrued expenses and other liabilities consist of the following:
December 31,
2011
2010
Self-insurance accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation and benefit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring reserves (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
National accounts accrual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due to seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 30
57
18
28
26
18
21
14
51
$ 36
32
23
28
21
14
15
—
39
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$263
$208
(1) Relates to branch closure charges and severance costs. See note 5 (“Restructuring and Asset Impairment
Charges”) for additional detail.
65
(2) Primarily relates to amounts billed to customers in excess of recognizable equipment rental revenue. See
note 2 (“Revenue Recognition”) for additional detail.
(3) Other includes multiple items, none of which are individually significant.
Other long-term liabilities consist of the following:
December 31,
2011
2010
Self-insurance accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$53
6
$57
2
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$59
$59
10.
Derivatives
We recognize all derivative instruments as either assets or liabilities at fair value, and recognize changes in
the fair value of the derivative instruments based on the designation of the derivative. For derivative instruments
that are designated and qualify as hedging instruments, we designate the hedging instrument, based upon the
exposure being hedged, as either a fair value hedge or a cash flow hedge. As of December 31, 2011, we do not
have any outstanding derivative instruments designated as fair value hedges. The effective portion of the changes
in fair value of derivatives that are designated as cash flow hedges is recorded as a component of accumulated
other comprehensive income. Amounts included in accumulated other comprehensive income for cash flow
hedges are reclassified into earnings in the same period that the hedged item is recognized in earnings. The
ineffective portion of changes in the fair value of derivatives designated as cash flow hedges is recorded
currently in earnings. For derivative instruments that do not qualify for hedge accounting, we recognize gains or
losses due to changes in fair value in our consolidated statements of income during the period in which the
changes in fair value occur.
We are exposed to certain risks relating to our ongoing business operations. During the year ended
December 31, 2011, the risks we managed using derivative instruments were diesel price risk and foreign
currency exchange rate risk. At December 31, 2011, we had outstanding fixed price swap contracts on diesel
purchases which were entered into to mitigate the price risk associated with forecasted purchases of diesel.
During the year ended December 31, 2011, we entered into forward contracts to purchase Canadian dollars to
mitigate the foreign currency exchange rate risk associated with certain Canadian dollar denominated
intercompany loans. At December 31, 2011, there were no outstanding forward contracts to purchase Canadian
dollars. The outstanding forward contracts on diesel purchases were designated and qualify as cash flow hedges
and the forward contracts to purchase Canadian dollars, which were all settled as of December 31, 2011,
represented derivative instruments not designated as hedging instruments.
Fixed Price Diesel Swaps
The fixed price swap contracts on diesel purchases that were outstanding at December 31, 2011 were
designated and qualify as cash flow hedges and the effective portion of the unrealized gain or loss on these
contracts is reported as a component of accumulated other comprehensive income and is reclassified into
earnings in the period during which the hedged transaction affects earnings (i.e., when the hedged gallons of
diesel are used). The remaining gain or loss on the fixed price swap contracts in excess of the cumulative change
in the present value of future cash flows of the hedged item, if any (i.e., the ineffective portion), is recognized in
our consolidated statements of income during the current period. As of December 31, 2011, we had outstanding
fixed price swap contracts covering 4.2 million gallons of diesel which will be purchased throughout 2012.
Foreign Currency Forward Contracts
The forward contracts to purchase Canadian dollars, which were all settled as of December 31, 2011,
represented derivative instruments not designated as hedging instruments and gains or losses due to changes in
66
the fair value of the forward contracts were recognized in our consolidated statements of income during the
period in which the changes in fair value occurred. During the year ended December 31, 2011, forward contracts
were used to purchase $221 Canadian dollars, representing the total amount due at maturity for certain Canadian
dollar denominated intercompany loans that were settled during the year ended December 31, 2011. Upon
maturity, the proceeds from the forward contracts were used to pay down the Canadian dollar denominated
intercompany loans.
Financial Statement Presentation
There were no derivative instruments outstanding during the year ended December 31, 2009, and derivative
instruments had no impact on our financial statements in 2009.
As of December 31, 2011 and December 31, 2010, $0 and less than $1 were reflected in prepaid expenses
and other assets, respectively, $1 and $0, respectively, were reflected in accrued expenses and other liabilities,
and less than $1 was reflected in accumulated other comprehensive income in our consolidated balance sheets
associated with the outstanding fixed price swap contracts that were designated and qualify as cash flow hedges.
Operating cash flows in our consolidated statement of cash flows for the year ended December 31, 2011 include
$22 associated with the fixed price diesel swaps, comprised of the $23 cost of the 5.9 million hedged gallons of
diesel purchased in 2011, net of cash received from the counterparties to the fixed price swaps. Insignificant
amounts (less than $1) were reflected in our consolidated statement of cash flows for the year ended
December 31, 2011 associated with the forward contracts to purchase Canadian dollars, as the cash impact of the
$4 gain recognized on the derivative was offset by the $4 loss recognized on the hedged item. Operating cash
flows in our consolidated statement of cash flows for the year ended December 31, 2010 include $11 associated
with the fixed price diesel swaps, comprised of the $11 cost of the 3.6 million hedged gallons of diesel purchased
in 2010, net of cash received from the counterparty to the fixed price swaps. Insignificant amounts (less than $1)
were reflected in our consolidated statement of cash flows for the year ended December 31, 2010 associated with
the forward contracts to purchase Canadian dollars, as the cash impact of the $13 gain recognized on the
derivative was offset by the $13 loss recognized on the hedged item.
The effect of our derivative instruments on our consolidated statements of income for the years ended
December 31, 2011 and 2010 was as follows:
Year Ended December 31, 2011
Year Ended December 31, 2010
Location of income
(expense)
recognized on
Amount of income Amount of expense Amount of income Amount of expense
derivative/
recognized
recognized
recognized
recognized
hedged item
on derivative
on hedged item
on derivative
on hedged item
Derivatives designated as
hedging instruments:
Fixed price diesel
swaps . . . . . . . . . . .
Derivatives not designated
as hedging instruments:
Foreign currency
forward contracts . .
*
(1)
(2)
(3)
Other income
(expense), net (1)
$
*
$
*
Cost of equipment
rentals, excluding
depreciation (2),
(3)
2
(23)
*
(11)
Other income
(expense), net
4
(4)
13
(13)
Amounts are insignificant (less than $1).
Represents the ineffective portion of the fixed price diesel swaps.
Amounts recognized on derivative represent the effective portion of the fixed price diesel swaps.
Amounts recognized on hedged item reflect the use of 5.9 million and 3.6 million gallons of diesel covered by the fixed
price swaps during the years ended December 31, 2011 and 2010, respectively.
67
11.
Fair Value Measurements
We account for certain assets and liabilities at fair value, and categorize each of our fair value measurements
in one of the following three levels based on the lowest level input that is significant to the fair value
measurement in its entirety:
Level 1—Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical
assets or liabilities.
Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities
include:
a) quoted prices for similar assets or liabilities in active markets;
b) quoted prices for identical or similar assets or liabilities in inactive markets;
c) inputs other than quoted prices that are observable for the asset or liability;
d) inputs that are derived principally from or corroborated by observable market data by correlation or other
means.
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for
substantially the full term of the asset or liability.
Level 3—Inputs to the valuation methodology are unobservable (i.e., supported by little or no market
activity) and significant to the fair value measure.
Assets and Liabilities Measured at Fair Value
As of December 31, 2011 and 2010, our only assets and liabilities measured at fair value were our fixed
price diesel swaps contracts, which are Level 2 derivatives measured at fair value on a recurring basis. As of
December 31, 2011, $1 was reflected in accrued expenses and other liabilities in our consolidated balance sheets,
reflecting the fair values of the fixed price diesel swaps contracts. As of December 31, 2010, less than $1 was
reflected in prepaid expenses and other assets in our consolidated balance sheets reflecting the fair value of the
fixed price diesel swaps contracts. As discussed in note 10 to the consolidated financial statements, we entered
into the fixed price swap contracts on diesel purchases to mitigate the price risk associated with forecasted
purchases of diesel. Fair value is determined based on observable market data. As of December 31, 2011, we
have fixed price swap contracts that mature throughout 2012 covering 4.2 gallons of diesel which we will buy at
the average contract price of $3.98 per gallon, while the average forward price for the hedged gallons was $3.79
per gallon as of December 31, 2011.
Fair Value of Financial Instruments
The carrying amounts reported in our consolidated balance sheets for accounts receivable, accounts payable
and accrued expenses and other liabilities approximate fair value due to the immediate to short-term maturity of
these financial instruments. The fair values of our senior secured asset-based revolving credit facility (“ABL
facility”), accounts receivable securitization facility and 1 7⁄ 8 percent Convertible Senior Subordinated Notes
approximate their book values as of December 31, 2011 and 2010. The estimated fair values of our other
financial instruments at December 31, 2011 and 2010 have been calculated based upon available market
information or an appropriate valuation technique, and are as follows:
Subordinated convertible debentures . . . . . . . . . . . . . . . . . .
Senior and senior subordinated notes . . . . . . . . . . . . . . . . .
Capital leases (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2011
Carrying
Fair
Amount
Value
December 31, 2010
Carrying
Fair
Amount
Value
$
$ 124
1,854
25
55
1,861
39
$
49
1,933
33
(1) The fair value of capital leases is determined using the expected present value of the leases.
68
$
92
2,020
20
12.
Debt
Debt consists of the following:
December 31,
2011
2010
URNA and subsidiaries debt:
Accounts Receivable Securitization Facility (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1.80 billion ABL Facility (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10 7⁄ 8 percent Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9 1⁄ 4 percent Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8 3⁄ 8 percent Senior Subordinated Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1 7⁄ 8 percent Convertible Senior Subordinated Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 255
810
489
493
750
22
39
$ 221
683
488
492
750
22
25
Total URNA and subsidiaries debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Holdings:
4 percent Convertible Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,858
2,681
129
124
Total debt (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less short-term portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,987
(395)
2,805
(229)
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,592
$2,576
(1) $929 and $7 were available under our ABL facility and accounts receivable securitization facility,
respectively, at December 31, 2011. The ABL facility availability is reflected net of $50 of letters of credit.
At December 31, 2011, the interest rates applicable to our ABL facility and accounts receivable
securitization facility were 2.4 percent and 0.9 percent, respectively.
(2) In August 1998, a subsidiary trust of Holdings (the “Trust”) issued and sold $300 of 6 1⁄ 2 percent
Convertible Quarterly Income Preferred Securities (“QUIPS”) in a private offering. The Trust used the
proceeds from the offering to purchase 6 1⁄ 2 percent subordinated convertible debentures due 2028 (the
“Debentures”), which resulted in Holdings receiving all of the net proceeds of the offering. The QUIPS are
non-voting securities, carry a liquidation value of $50 (fifty dollars) per security and are convertible into
Holdings’ common stock. Total long-term debt at December 31, 2011 and 2010 excludes $55 and $124 of
these Debentures, respectively, which are separately classified in our consolidated balance sheets and
referred to as “subordinated convertible debentures.” The subordinated convertible debentures reflect the
obligation to our subsidiary that has issued the QUIPS. This subsidiary is not consolidated in our financial
statements because we are not the primary beneficiary of the Trust. See note 13 (“Subordinated Convertible
Debentures”) for additional detail.
Short-term debt
As of December 31, 2011, our short-term debt primarily reflects $255 of borrowings under our accounts
receivable securitization facility and $129 of 4 percent Convertible Senior Notes. The 4 percent Convertible
Senior Notes mature in 2015, but are reflected as short-term debt because they are convertible at
December 31, 2011. As discussed below, in September 2011, we amended our accounts receivable securitization
facility. During the year ended December 31, 2011, the monthly average amount outstanding under the accounts
receivable securitization facility, including the former and amended facilities, was $230 and the weightedaverage interest rate thereon was 1.4 percent. The maximum month-end amount outstanding under the accounts
receivable securitization facility during the year ended December 31, 2011, including the former and amended
facilities, was $276.
Accounts Receivable Securitization Facility. In September 2011, we amended our accounts receivable
securitization facility. The amended facility expires on September 26, 2012, and may be extended on a 364-day
basis by mutual agreement of the Company and the purchasers under the facility. The amended facility provides
69
for, among other things, (i) a decrease in the facility size from $325 to $300, (ii) adjustments to the receivables
subject to purchase, (iii) generally lower borrowing costs, which are based on commercial paper rates plus a
specified spread, and (iv) a commitment fee based on the utilization of the facility. Borrowings under the
amended facility will continue to be reflected as short-term debt on our consolidated balance sheets. Key
provisions of the amended facility include the following:
•
borrowings are permitted only to the extent that the face amount of the receivables in the collateral pool,
net of applicable reserves, exceeds the outstanding loans by a specified amount. As of
December 31, 2011, there were $372 of receivables in the collateral pool;
•
the receivables in the collateral pool are the lenders’ only source of repayment;
•
upon early termination of the facility, no new amounts will be advanced under the facility and
collections on the receivables securing the facility will be used to repay the outstanding borrowings; and
•
standard termination events including, without limitation, a change of control of Holdings, URNA or
certain of its subsidiaries, a failure to make payments, a failure to comply with standard default,
delinquency, dilution and days sales outstanding covenants, or breach of certain financial ratio
covenants under the ABL facility.
ABL Facility. In June 2008, Holdings, URNA, and certain of our subsidiaries entered into a credit agreement
providing for a five-year $1.25 billion ABL facility, a portion of which is available for borrowing in Canadian
dollars. In October 2008 and November 2009, the ABL facility was upsized to $1.285 billion and $1.36 billion,
respectively. In October 2011, we amended the ABL facility. The amended facility, which expires on October 13,
2016, provides for, among other things, an increase in the facility size from $1.36 billion to $1.80 billion, an
uncommitted incremental increase in the size of the facility of up to $500, and generally lower borrowing costs.
The ABL facility is subject to, among other things, the terms of a borrowing base derived from the value of
eligible rental equipment and eligible inventory. The borrowing base is subject to certain reserves and caps
customary for financings of this type. All amounts borrowed under the credit agreement must be repaid on or
before October 2016. Loans under the credit agreement bear interest, at URNA’s option: (i) in the case of loans
in U.S. dollars, at a rate equal to the London interbank offered rate or an alternate base rate, in each case plus a
spread, or (ii) in the case of loans in Canadian dollars, at a rate equal to the Canadian prime rate or an alternate
rate (Bankers Acceptance Rate), in each case plus a spread. The interest rates under the credit agreement are
subject to change based on the availability in the facility. A commitment fee accrues on any unused portion of the
commitments under the credit agreement at a rate per annum based on usage. Ongoing extensions of credit under
the credit agreement are subject to customary conditions, including sufficient availability under the borrowing
base. The credit agreement also contains covenants that, unless certain financial and other conditions are
satisfied, require URNA to satisfy various financial tests and to maintain certain financial ratios. As discussed
below (see “Loan Covenants and Compliance”), the only material financial covenants which currently exist relate
to the fixed charge coverage ratio and the senior secured leverage ratio. Since the October 2011 amendment of
the facility and through December 31, 2011, availability under the ABL facility has exceeded the required
threshold and, as a result, these maintenance covenants have been inapplicable. In addition, the credit agreement
contains customary negative covenants applicable to Holdings, URNA and our subsidiaries, including negative
covenants that restrict the ability of such entities to, among other things, (i) incur additional indebtedness or
engage in certain other types of financing transactions, (ii) allow certain liens to attach to assets, (iii) repurchase,
or pay dividends or make certain other restricted payments on capital stock and certain other securities,
(iv) prepay certain indebtedness and (v) make acquisitions and investments. The U.S. dollar borrowings under
the credit agreement are secured by substantially all of our assets and substantially all of the assets of certain of
our U.S. subsidiaries (other than real property and certain accounts receivable). The U.S. dollar borrowings under
the credit agreement are guaranteed by Holdings and by URNA and, subject to certain exceptions, our domestic
subsidiaries. Borrowings under the credit agreement by URNA’s Canadian subsidiaries are also secured by
substantially all the assets of URNA’s Canadian subsidiaries and supported by guarantees from the Canadian
subsidiaries and from Holdings and URNA, and, subject to certain exceptions, our domestic subsidiaries. Under
70
the ABL facility, a change of control (as defined in the credit agreement) constitutes an event of default, entitling
our lenders, among other things, to terminate our ABL facility and to require us to repay outstanding borrowings.
As of December 31, 2011, the ABL facility was our only long-term variable rate debt instrument. During the
year ended December 31, 2011, the monthly average amount outstanding under the ABL facility, including the
former and amended facilities, was $707, and the weighted-average interest rate thereon was 3.1 percent. The
maximum month-end amount outstanding under the ABL facility during the year ended December 31, 2011,
including the former and amended facilities, was $810.
10 7⁄ 8 percent Senior Notes. In June 2009, URNA issued $500 aggregate principal amount of 10 7⁄ 8 percent
Senior Notes (the “10 7⁄ 8 percent Notes”), which are due June 15, 2016. The net proceeds from the sale of the
10 7⁄ 8 percent Notes were $471 (after deducting the initial purchasers’ discount and offering expenses). The 10 7⁄ 8
percent Notes are unsecured and are guaranteed by Holdings and, subject to limited exceptions, URNA’s
domestic subsidiaries. The 10 7⁄ 8 percent Notes may be redeemed on or after June 15, 2013 at specified
redemption prices that range from 105.438 percent in 2013 to 100.0 percent in 2015 and thereafter. The indenture
governing the 10 7⁄ 8 percent Notes contains certain restrictive covenants, including, among others, limitations on
(i) indebtedness; (ii) restricted payments; (iii) liens; (iv) asset sales; (v) issuance of preferred stock of restricted
subsidiaries; (vi) transactions with affiliates; (vii) dividend and other payment restrictions affecting restricted
subsidiaries; (viii) designations of unrestricted subsidiaries; (ix) additional subsidiary guarantees and (x) mergers,
consolidations or sales of substantially all of its assets. The indenture also requires that, in the event of a change
of control (as defined in the indenture), URNA must make an offer to purchase all of the then outstanding 10 7⁄ 8
percent Notes tendered at a purchase price in cash equal to 101 percent of the principal amount thereof plus
accrued and unpaid interest, if any, thereon. The difference between the December 31, 2011 carrying value of the
10 7⁄ 8 percent Notes and the $500 principal amount relates to the $11 unamortized portion of the original issue
discount recognized in conjunction with the issuance of these notes, which is being amortized through the above
maturity date. The effective interest rate on the 10 7⁄ 8 percent Notes is 11.50 percent.
9 1⁄ 4 percent Senior Notes. In November 2009, URNA issued $500 aggregate principal amount of
percent Senior Notes (the “9 1⁄ 4 percent Notes”), which are due December 15, 2019. The net proceeds from
the sale of the 9 1⁄ 4 percent Notes were $480 (after deducting the initial purchasers’ discount and offering
expenses). The 9 1⁄ 4 percent Notes are unsecured and are guaranteed by Holdings and, subject to limited
exceptions, URNA’s domestic subsidiaries. The 9 1⁄ 4 percent Notes may be redeemed on or after December 15,
2014 at specified redemption prices that range from 104.625 percent in 2014 to 100.0 percent in 2017 and
thereafter. The indenture governing the 9 1⁄ 4 percent Notes contains certain restrictive covenants, including,
among others, limitations on (i) indebtedness; (ii) restricted payments; (iii) liens; (iv) asset sales; (v) issuance of
preferred stock of restricted subsidiaries; (vi) transactions with affiliates; (vii) dividend and other payment
restrictions affecting restricted subsidiaries; (viii) designations of unrestricted subsidiaries; (ix) additional
subsidiary guarantees and (x) mergers, consolidations or sales of substantially all of its assets. The indenture also
requires that, in the event of a change of control (as defined in the indenture), URNA must make an offer to
purchase all of the then outstanding 9 1⁄ 4 percent Notes tendered at a purchase price in cash equal to 101 percent
of the principal amount thereof plus accrued and unpaid interest, if any, thereon. The difference between the
December 31, 2011 carrying value of the 9 1⁄ 4 percent Notes and the $500 principal amount relates to the $7
unamortized portion of the original issue discount recognized in conjunction with the issuance of these notes,
which is being amortized through the above maturity date. The effective interest rate on the 9 1⁄ 4 percent Notes is
9.50 percent.
9 1⁄ 4
8 3⁄ 8 percent Senior Subordinated Notes. In October 2010, URNA issued $750 aggregate principal amount of
8 3⁄ 8 percent Senior Subordinated Notes (the “8 3⁄ 8 percent Notes”), which are due September 15, 2020. The net
proceeds from the sale of the 8 3⁄ 8 percent Notes were $732 (after deducting the initial purchasers’ discount and
offering expenses). The 8 3⁄ 8 percent Notes are unsecured and are guaranteed by Holdings and, subject to limited
exceptions, URNA’s domestic subsidiaries. The 8 3⁄ 8 percent Notes may be redeemed by URNA on or after
71
September 15, 2015, at specified redemption prices that range from 104.188 percent in 2015 to 100.0 percent in
2018 and thereafter. The indenture governing the 8 3⁄ 8 percent Notes contains certain restrictive covenants,
including, among others, limitations on (i) additional indebtedness, (ii) restricted payments, (iii) liens, (iv) asset
sales, (v) preferred stock of certain subsidiaries, (vi) transactions with affiliates, (vii) dividends and other
payments, (viii) designations of unrestricted subsidiaries; (ix) additional subsidiary guarantees; and (x) mergers,
consolidations or sales of substantially all of our assets. The indenture also requires that, in the event of a change
of control (as defined in the indenture), URNA must make an offer to purchase all of the then outstanding
8 3⁄ 8 percent Notes tendered at a purchase price in cash equal to 101 percent of the principal amount thereof plus
accrued and unpaid interest, if any, thereon.
1 7⁄ 8 percent Convertible Senior Subordinated Notes. In October and December 2003, URNA issued
approximately $144 aggregate principal amount of 1 7⁄ 8 percent Convertible Senior Subordinated Notes (the
“1 7⁄ 8 percent Convertible Notes”), which are due October 15, 2023. The net proceeds from the sale of the
1 7⁄ 8 percent Convertible Notes were approximately $140, after deducting the initial purchasers’ discount and
offering expenses. The 1 7⁄ 8 percent Convertible Notes are unsecured and are guaranteed by Holdings. Holders of
the 1 7⁄ 8 percent Convertible Notes may convert them into shares of common stock of Holdings prior to their
maturity at a current conversion price of approximately $21.83 per share (subject to further adjustment in certain
circumstances), if (i) the price of Holdings’ common stock reaches a specific threshold, (ii) the 1 7⁄ 8 percent
Convertible Notes are called for redemption, (iii) specified corporate transactions occur or (iv) the trading price
of the 1 7⁄ 8 percent Convertible Notes falls below certain thresholds. The 1 7⁄ 8 percent Convertible Notes mature
on October 15, 2023. In October 2010, we redeemed $93 principal amount of the 1 7⁄ 8 percent Convertible Notes
following the exercise of a mandatory repurchase option by holders of the notes. Holders of the 1 7⁄ 8 percent
Convertible Notes may require URNA to repurchase all or a portion of the 1 7⁄ 8 percent Convertible Notes in cash
on each of October 15, 2013 and October 15, 2018 at 100 percent of the principal amount of the 1 7⁄ 8 percent
Convertible Notes to be repurchased. If the total $22 outstanding principal amount of the 1 7⁄ 8 percent Convertible
Notes was converted, the total cost to settle the notes would be $30, assuming a conversion price of $29.55 (the
closing price of our common stock on December 31, 2011) per share of common stock. The total cost to settle
would change approximately $1 for each $1 (actual dollars) change in our stock price. The 1 7⁄ 8 percent
Convertible Notes were not convertible at December 31, 2011.
4 percent Convertible Senior Notes. In November 2009, Holdings issued $173 aggregate principal amount
of unsecured 4 percent Convertible Senior Notes (the “4 percent Convertible Notes”), which are due
November 15, 2015. The net proceeds from the sale of the 4 percent Convertible Notes were approximately
$167, after commissions, fees and expenses, but before the $26 cost of the convertible note hedge transactions
described below. Holders of the 4 percent Convertible Notes may convert them into shares of Holdings’ common
stock prior to the close of business on the business day immediately preceding May 15, 2015 (subject to earlier
conversion in certain circumstances) at an initial conversion price of approximately $11.11 per share of common
stock (subject to further adjustment in certain circumstances), if (i) the price of Holdings’ common stock reaches
a specific threshold, (ii) the trading price of the 4 percent Convertible Notes falls below certain thresholds or
(iii) specified corporate transactions occur. The difference between the December 31, 2011 carrying value of the
4 percent Convertible Notes and the outstanding principal amount of $168 reflects the $39 unamortized portion
of the original issue discount recognized upon issuance of the notes, which is being amortized through the
maturity date of November 15, 2015. Because the 4 percent Convertible Notes were convertible at
December 31, 2011, an amount equal to the $39 unamortized portion of the original issue discount is separately
classified in our consolidated balance sheets and referred to as “temporary equity.” Based on the price of our
common stock during 2011, holders of the 4 percent Convertible Notes had the right to convert the notes during
each of the quarters in 2011 at a conversion price of $11.11 per share of common stock. During the year ended
December 31, 2011, $5 of the 4 percent Convertible Notes were converted. Upon the conversion of these notes,
we received $1 from the hedge counterparties, and recognized a $1 increase in additional paid-in capital.
Additionally, upon the conversion of these notes, additional paid-in capital was reduced by $7, reflecting the
excess of the cash transferred upon settlement over the $5 principal amount of the converted notes. Based on the
price of our common stock during the fourth quarter of 2011, holders of the 4 percent Convertible Notes have the
72
right to convert the notes during the first quarter of 2012 at a conversion price of $11.11 per share of common
stock. Between January 1, 2012 (the beginning of the first quarter) and January 23, 2012, none of the 4 percent
Convertible Notes were converted.
If the total $168 outstanding principal amount of the 4 percent Convertible Notes was converted, the total
cost to settle the notes would be $446, assuming a conversion price of $29.55 (the closing price of our common
stock on December 31, 2011) per share of common stock. The $168 principal amount would be settled in cash,
and the remaining $278 could be settled in cash, shares of our common stock, or a combination thereof, at our
discretion. Based on the December 31, 2011 closing stock price, approximately 9 million shares of stock would
be issued if we settled the entire $278 of conversion value in excess of the principal amount in stock. The total
cost to settle would change approximately $15 for each $1 (actual dollars) change in our stock price. If the full
principal amount was converted at our December 31, 2011 closing stock price, we estimate that we would receive
approximately $40 in either cash or stock from the hedge counterparties, after which the effective conversion
price would be approximately $13.78.
If Holdings undergoes a fundamental change (as defined in the indenture governing the 4 percent
Convertible Notes), holders of the 4 percent Convertible Notes may require Holdings to repurchase all or any
portion of their 4 percent Convertible Notes for cash at a price equal to 100 percent of the principal amount of the
4 percent Convertible Notes to be purchased plus any accrued and unpaid interest, including any additional
interest, through but excluding the fundamental change purchase date. The difference between the
December 31, 2011 carrying value of the 4 percent Convertible Notes and the $168 principal amount relates to
the $39 unamortized portion of the original issue discount recognized in conjunction with the issuance of these
notes, which is being amortized through the above maturity date. The original issue discount increased additional
paid-in capital by $33, net of taxes, in our accompanying consolidated statements of stockholders’ equity
(deficit), and represents the difference between the $173 of gross proceeds from the 4 percent Convertible Notes
issuance and the fair value of the debt component of the 4 percent Convertible Notes at issuance. The effective
interest rate on the debt component of the 4 percent Convertible Notes is 11.60 percent. Upon conversion of the
4 percent Convertible Notes, we pay cash for the principal amount of the note, and cash, shares of our common
stock, or a combination thereof, at our discretion, for the portion of the conversion value that exceeds the
principal amount of the note.
In connection with the 4 percent Convertible Notes offering, Holdings entered into convertible note hedge
transactions with option counterparties. The convertible note hedge transactions cost $26, and decreased
additional paid-in capital by $17, net of taxes, in our accompanying consolidated statements of stockholders’
equity (deficit). The convertible note hedge transactions cover, subject to anti-dilution adjustments, 15.1 million
shares of our common stock. The convertible note hedge transactions are intended to reduce, subject to a limit,
the potential dilution with respect to our common stock upon conversion of the 4 percent Convertible Notes. The
effect of the convertible note hedge transactions is to increase the effective conversion price to $15.56 per share,
equal to an approximately 75 percent premium over the $8.89 closing price of our common stock at issuance.
The effective conversion price is subject to change in certain circumstances, such as if the 4 percent Convertible
Notes are converted prior to May 15, 2015. In the event the market value of our common stock exceeds the
effective conversion price per share, the settlement amount received from such transactions will only partially
offset the potential dilution. For example, if, at the time of exercise of the conversion right, the price of our
common stock was $30.00 or $35.00 per share, assuming an effective conversion price of $15.56 per share, on a
net basis, we would issue 7.3 million or 8.4 million shares, respectively. Based on the price of our common stock
during 2011, holders of the 4 percent Convertible Notes had the right to convert the notes during each of the
quarters in 2011 at a conversion price of $11.11 per share of common stock. During the year ended
December 31, 2011, $5 of the 4 percent Convertible Notes were converted at an effective conversion price of
$13.70.
Retirement of Debt. During the years ended December 31, 2011 and 2010, we repurchased or redeemed and
subsequently retired certain of our outstanding debt securities. In connection with these repurchases/redemptions,
73
we recognized losses based on the difference between the net carrying amounts of the repurchased securities and
the repurchase prices. A summary of our debt repurchase activity for the years ended December 31, 2011 and
2010 is as follows:
Year ended December 31, 2011
Repurchase
price
Principal Loss (1)
7 3⁄ 4 percent Senior Subordinated Notes (2) . . . .
7 percent Senior Subordinated Notes (2) . . . . . .
6 1⁄ 2 percent Senior Notes (2) . . . . . . . . . . . . . . .
1 7⁄ 8 percent Convertible Senior Subordinated
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4 percent Convertible Senior Notes (3) . . . . . . .
$—
—
—
$—
—
—
$—
—
—
—
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5
5
5
$
5
$ 490
267
435
$ 484
261
435
$ (14)
(8)
(4)
93
—
93
—
(2)
—
(*) $1,285
$1,273
$ (28)
(*)
$
Year ended December 31, 2010
Repurchase
price
Principal Loss (1)
*
Amount is insignificant (less than $1).
(1) The amount of the loss is calculated as the difference between the net carrying amount of the related
security and the repurchase price. The net carrying amounts of the securities are less than the principal
amounts due to capitalized debt issuance costs and any original issue discount. Aggregate costs of less than
$1 and $16 were written off in the years ended December 31, 2011 and 2010, respectively, in connection
with the repurchases/redemptions. The $16 of aggregate costs written off in the year ended
December 31, 2010 was comprised of $12 of write-offs of debt issuance costs and a $4 write-off of a
previously terminated derivative transaction. The losses are reflected in interest expense, net in our
consolidated statements of income.
(2) Prior to December 31, 2010, we repurchased and retired the entire principal amounts of these debt securities,
which are not reflected in our consolidated balance sheets as of December 31, 2011 and 2010.
(3) As discussed above, based on the price of our common stock during 2011, holders of the 4 percent
Convertible Senior Notes had the right to convert the notes during each of the quarters in 2011. We paid a
total of $12 to settle the $5 principal amount of the 4 percent Convertible Senior Notes that were settled in
2011. The $5 repurchase price represents the repurchase price for the debt component of the settled
securities. In connection with the settlement, as discussed above, additional paid-in capital was reduced by
$7, reflecting the excess of the cash transferred upon settlement over the $5 principal amount of the
converted notes.
In addition to the loss in the table above, during the year ended December 31, 2011, we recognized a loss of
$3 associated with the amendment of our ABL facility discussed above. This loss is reflected in interest expense,
net in our consolidated statements of income and reflects the write-off of debt issuance costs associated with
creditors of the former ABL facility that did not participate in the amended ABL facility.
Loan Covenants and Compliance
As of December 31, 2011, we were in compliance with the covenants and other provisions of the ABL
facility, the accounts receivable securitization facility, the senior notes and the QUIPS. Any failure to be in
compliance with any material provision or covenant of these agreements could have a material adverse effect on
our liquidity and operations.
As discussed above, in October 2011, we amended the ABL facility. The only material financial covenants
which currently exist relate to the fixed charge coverage ratio and the senior secured leverage ratio under the
amended ABL facility. Since the October 2011 amendment of the facility and through December 31, 2011,
availability under the ABL facility has exceeded the required threshold and, as a result, these maintenance
covenants have been inapplicable. Subject to certain limited exceptions specified in the ABL facility, the fixed
charge coverage ratio and the senior secured leverage ratio under the ABL facility will only apply in the future if
74
availability under the ABL facility falls below the greater of 10 percent of the maximum revolver amount under
the ABL facility and $150. As discussed above, in September 2011, we amended the accounts receivable
securitization facility. Under the accounts receivable securitization facility, we are required, among other things,
to maintain certain financial tests relating to: (i) the default ratio, (ii) the delinquency ratio, (iii) the dilution ratio
and (iv) days sales outstanding.
Maturities
Maturities of the Company’s debt (exclusive of any unamortized original issue discount) for each of the next
five years and thereafter at December 31, 2011 are as follows:
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 266
7
7
173
1,312
1,279
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,044
Our 4 percent Convertible Senior Notes mature in 2015, but are reflected as short-term debt in our
consolidated balance sheet because they are convertible at December 31, 2011. The 4 percent Convertible Senior
Notes are reflected in the table above based on the contractual maturity date in 2015.
13.
Subordinated Convertible Debentures
The subordinated convertible debentures included in our consolidated balance sheets reflect the obligation
to the Trust. This subsidiary is not consolidated in our financial statements because we are not the primary
beneficiary of the Trust.
In August 1998, the Trust issued and sold $300 of QUIPS in a private offering. The Trust used the proceeds
from the offering to purchase the Debentures, which resulted in Holdings receiving all of the net proceeds of the
offering. The QUIPS are non-voting securities, carry a liquidation value of $50 (fifty dollars) per security and are
convertible into Holdings’ common stock. The initial convertible rate was 1.146 shares of common stock per
preferred security (equivalent to an initial conversion price of $43.63 per share). In July 2008, following the
completion of a modified “Dutch auction” tender offer, the conversion price of the QUIPS was adjusted to
$41.02 and, accordingly, each $50 (fifty dollars) in liquidation preference is now convertible into 1.219 shares of
common stock. During the years ended December 31, 2011 and 2009, we purchased an aggregate of $69 and $22,
respectively, of QUIPS for $68 and $9, respectively. In connection with these transactions, in 2011 and 2009, we
retired $69 and $22, respectively, principal amount of our subordinated convertible debentures and recognized a
loss of $2 and a gain of $13, respectively, inclusive of the write-off of capitalized debt issuance costs. These
losses/gains are reflected in interest expense-subordinated convertible debentures, net, in our consolidated
statements of income. As of December 31, 2011 and 2010, the aggregate amount of Debentures outstanding was
$55 and $124, respectively.
Holders of the QUIPS are entitled to preferential cumulative cash distributions from the Trust at an annual
rate of 6 1⁄ 2 percent of the liquidation value, accruing from the original issue date and payable quarterly in arrears
beginning February 1, 1999. The distribution rate and dates correspond to the interest rate and payment dates on
the Debentures. Holdings may defer quarterly interest payments on the Debentures for up to twenty consecutive
quarters, but not beyond the maturity date of the Debentures. If Holdings’ quarterly interest payments on the
Debentures are deferred, so are the corresponding cash distribution payments on the QUIPS. During any period
in which Holdings is deferring its quarterly interest payments, Holdings will be prohibited from paying dividends
on any of its capital stock or making principal, interest or other payments on debt securities that rank pari passu
with or junior to the Debentures.
75
Holdings has executed a guarantee with regard to payment of the QUIPS to the extent that the Trust has
insufficient funds to make the required payments.
14.
Income Taxes
The components of the provision (benefit) for income taxes from continuing operations for each of the three
years in the period ended December 31, 2011 are as follows:
Year ended
December 31,
2011
2010
2009
Current
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$—
22
2
24
$—
16
1
17
$(55)
5
(1)
(51)
36
1
2
39
$ 63
(48)
(1)
(9)
(58)
$ (41)
13
2
(11)
4
$(47)
A reconciliation of the provision (benefit) for income taxes and the amount computed by applying the
statutory federal income tax rate of 35 percent to the income (loss) from continuing operations before provision
(benefit) for income taxes for each of the three years in the period ended December 31, 2011 is as follows:
Year ended
December 31,
2011
2010
2009
Computed tax at statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible expenses and other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$57
3
12
(9)
$63
$(22)
(8)
(6)
(5)
$(41)
$(38)
(7)
(1)
(1)
$(47)
(1) 2011 non-deductible expenses and other includes $6 due to the non-deductibility of certain costs associated
with the proposed RSC acquisition and $3 related to an adjustment of federal and state deferred tax
liabilities. 2010 non-deductible expenses and other includes a benefit of $7 related to a correction of a
deferred tax asset recognized in prior periods.
76
The components of deferred income tax assets (liabilities) are as follows:
December 31, 2011
Non
Current Current
Total
December 31, 2010
Non
Current
Current
Total
Reserves and allowances . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss and credit carryforwards . . . . . . . . . . .
$ 45
—
59
$ 33
45
97
$ 78
45
156
$ 69
—
—
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . .
104
175
279
69
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt cancellation and other . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
(620)
(5)
(18)
(2)
(620)
(5)
(18)
(2)
Total deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . .
—
(645)
(645)
Total deferred income tax asset (liability) . . . . . . . . . . . .
$104
$(470) $(366)
$
9
81
167
$ 78
81
167
257
326
—
—
—
—
(618)
—
(22)
(2)
(618)
—
(22)
(2)
—
(642)
(642)
$ 69
$(385)
$(316)
As of December 31, 2011 and 2010, we had $4 of unrecognized tax benefits all of which would impact our
effective tax rate if recognized. A reconciliation of the beginning and ending amounts of unrecognized tax
benefits is as follows:
2011
2010
Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$6
(2)
Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4
—
4
$4
We include interest accrued on the underpayment of income taxes in interest expense, and penalties, if any,
related to unrecognized tax benefits in selling, general and administrative expense. Interest expense of less than
$1 related to income tax was reflected in our consolidated statements of income for each of the years ended
December 31, 2011 and 2010.
We file income tax returns in the United States and in several foreign jurisdictions. With few exceptions, we
have completed our domestic and international income tax examinations, or the statute of limitations has expired
in the respective jurisdictions, for years prior to 2004. The Internal Revenue Service (“IRS”) has completed
audits for periods prior to 2006. Canadian authorities have concluded income tax audits for periods through 2006.
The Company paid cash settlements of $3 in the fourth quarter of 2009 and $1 in the first quarter of 2010 relating
to the 2003 through 2005 Canadian transfer pricing audit, which is now closed. Included in the balance of
unrecognized tax benefits at December 31, 2011 are certain tax positions under audit by the Canadian Revenue
Authority (“CRA”), and it is reasonably possible that these audits will be concluded within the next 12 months. It
is reasonably possible that the conclusion of these audits will result in a settlement of reported unrecognized tax
benefits for those tax positions during the next 12 months. However, based on the status of the ongoing audit
examinations and alternative settlement options available to the Company for certain of these tax positions,
which could include legal proceedings, it is not possible to estimate the amount of the change, if any, to the
previously recorded uncertain tax positions.
For financial reporting purposes, income from continuing operations before income taxes for our foreign
subsidiaries was $86, $54 and $25 for the years ended December 31, 2011, 2010 and 2009, respectively. At
December 31, 2011, unremitted earnings of foreign subsidiaries were approximately $232. Since it is our
intention to indefinitely reinvest these earnings, no U.S. taxes have been provided for these amounts.
Determination of the amount of unrecognized deferred tax liability on these unremitted taxes is not practicable.
77
We have net operating loss carryforwards (“NOLs”) of $1,080 for state income tax purposes that expire
from 2012 through 2031. We have recorded a valuation allowance against this deferred asset of $2 as of
December 31, 2011 and 2010. We have NOLs of $136 for federal income tax purposes that expire beginning in
2030. We have not recorded a valuation allowance against this deferred tax asset because it is deemed more
likely than not that such benefit will be realized in the future.
15.
Commitments and Contingencies
Derivative Litigation and Stockholder Class Action Lawsuits
As previously reported, following our August 2004 announcement that the SEC had commenced a
non-public, fact-finding inquiry concerning the Company, an alleged stockholder filed an action in Connecticut
State Superior Court, Judicial District of Norwalk/Stamford at Stamford, purportedly suing derivatively on the
Company’s behalf. The action, entitled Gregory Riegel v. John N. Milne, et al., named as defendants certain of
our current and/or former directors and/or officers, and named the Company as a nominal defendant. The
complaint asserted, among other things, that the defendants breached their fiduciary duties to the Company by
causing or allowing the Company to disseminate misleading and inaccurate information to stockholders and the
market and by failing to establish and maintain adequate accounting controls, thus exposing the Company to
damages. The complaint seeks unspecified compensatory damages, costs and expenses against the defendants.
The parties to the Riegel action agreed that the proceedings in this action would be stayed pending the resolution
of the motions to dismiss in certain previously-filed purported stockholder class actions. As previously reported,
those purported stockholder class actions were commenced in 2004 and were dismissed with prejudice, pursuant
to a stipulation of settlement in May 2009. We previously announced on September 8, 2008 that we had also
reached a final settlement with the SEC of its inquiry.
Subsequent to our November 14, 2007 announcement that affiliates of Cerberus Capital Management, L.P.
had notified us that they were not prepared to proceed with the purchase of the Company on the terms set forth in
the merger agreement, three putative class action lawsuits were filed against the Company in the United States
District Court for the District of Connecticut. The District Court subsequently consolidated the three actions
under the caption First New York Securities, L.L.C., et al. v. United Rentals, Inc., et al. Lead plaintiffs, by their
second consolidated amended complaint, purported to sue on behalf of a proposed class of persons who
purchased or otherwise acquired our securities between August 30, 2007 and November 14, 2007 and named as
defendants the Company, our chief executive officer and our former general counsel. Plaintiffs asserted claims
under Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section 20(a) of the Exchange Act,
based on alleged false or misleading statements and/or material omissions relating to the contemplated merger
purportedly contained in certain of the Company’s filings with the SEC and other public statements. On
August 24, 2009, the District Court granted defendants’ motion to dismiss the second consolidated amended
complaint with prejudice and subsequently entered judgment in favor of defendants. On August 30, 2010, the
United States Court of Appeals for the Second Circuit affirmed the judgment of dismissal entered by the District
Court. On February 24, 2011, the Court of Appeals denied plaintiffs petition for rehearing en banc or panel
rehearing. Plaintiffs did not file a petition for a writ of certiorari before the United States Supreme Court, and the
dismissal of this action is now final.
On December 28, 2011, a complaint was filed in Arizona Superior Court, entitled Israni v. RSC Holdings
Inc., CV2011-020579, on behalf of a putative class of RSC’s stockholders against RSC, each member of the RSC
board, certain of RSC’s officers, and the Company challenging our proposed merger with RSC. The complaint
alleges, among other things, that the directors and officers of RSC breached their fiduciary duties by allegedly
agreeing to sell RSC at an unfair and inadequate price and by allegedly failing to take steps to maximize the sale
price of RSC. The complaint also alleges that RSC and the Company aided and abetted in RSC’s directors’ and
officers’ breach of their fiduciary duties. The complaint seeks injunctive relief and other equitable relief as well
as money damages. The Company believes that this suit lacks merit and intends to vigorously defend against
these claims.
78
We are also subject to a number of claims and proceedings that generally arise in the ordinary conduct of
our business. These matters include, but are not limited to, general liability claims (including personal injury,
product liability, and property and auto claims), indemnification and guarantee obligations, employee injuries
and employment-related claims, self-insurance obligations and contract and real estate matters. Based on advice
of counsel and available information, including current status or stage of proceeding, and taking into account
accruals for matters where we have established them, we currently believe that any liabilities ultimately resulting
from these ordinary course claims and proceedings will not, individually or in the aggregate, have a material
adverse effect on our consolidated financial position, results of operations or cash flows.
Indemnification
The Company indemnifies its officers and directors pursuant to indemnification agreements and may in
addition indemnify these individuals as permitted by Delaware law. Accordingly, in connection with the
previously reported purported class action lawsuits, the purported stockholder derivative litigation, the SEC
inquiry, the U.S. Attorney’s Office inquiry and related review of the Special Committee, the Company has
advanced counsel fees and other reasonable fees and expenses, actually and necessarily incurred by the present
and former directors and officers who are involved, in an aggregate amount of approximately $19, most of which
was advanced between 2005 and 2009. Each of the aforementioned individuals is required to execute an
undertaking to repay such expenses if he or she is finally found not to be entitled to indemnification. The
Company does not currently expect to incur material indemnification expense in connection with these matters
during 2012.
Operating Leases
We lease rental equipment, real estate and certain office equipment under operating leases. Certain real
estate leases require us to pay maintenance, insurance, taxes and certain other expenses in addition to the stated
rental payments. Future minimum lease payments, including the maximum potential guarantee amounts
associated with some of our non-rental equipment operating leases for which we guarantee that the value of the
equipment at the end of the lease term will not be less than a specified projected residual value, by year and in
the aggregate, for non-cancelable operating leases with initial or remaining terms of one year or more are as
follows at December 31, 2011:
Real
Estate
Leases
Non-Rental
Equipment
Leases
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 76
64
53
42
31
73
$37
17
12
10
6
10
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$339
$92
Rent expense under all non-cancelable real estate, rental equipment and other equipment operating leases
totaled $122, $129 and $136 for the years ended December 31, 2011, 2010 and 2009, respectively. Our real estate
leases provide for varying terms, including customary escalation clauses.
Employee Benefit Plans
We currently sponsor two defined contribution 401(k) retirement plans, which are subject to the provisions
of the Employee Retirement Income Security Act of 1974. We also sponsor a deferred profit sharing plan for the
benefit of the full-time employees of our Canadian subsidiaries. Under these plans, we match a percentage of the
79
participants’ contributions up to a specified amount. Company contributions to the plans were $6, $2 and $2 in
the years ended December 31, 2011, 2010 and 2009, respectively. The increase in company contributions in 2011
from 2010 was primarily due to an increase in the maximum amount of the Company’s matching contribution,
which reflected a decision made in response to improvements in the economic environment.
Environmental Matters
The Company and its operations are subject to various laws and related regulations governing
environmental matters. Under such laws, an owner or lessee of real estate may be liable for the costs of removal
or remediation of certain hazardous or toxic substances located on or in, or emanating from, such property, as
well as investigation of property damage. We incur ongoing expenses associated with the removal of
underground storage tanks and the performance of appropriate remediation at certain of our locations.
16.
Common Stock
We have 500 million authorized shares of common stock, $0.01 par value. At December 31, 2011 and 2010,
there were (i) 1.5 million and 3.4 million shares of common stock reserved for issuance pursuant to options
granted under our stock option plans, respectively, (ii) 1.3 million and 3.0 million shares of common stock
reserved for the conversion of outstanding QUIPS of the Trust, respectively, (iii) 1.0 million shares of common
stock reserved for the conversion of 1 7⁄ 8 percent Convertible Notes and (iv) 18.9 million and 19.4 million shares
of common stock reserved for the conversion of 4 percent Convertible Notes, respectively. As discussed above
(see note 12 “Debt”), based on the price of our common stock during the fourth quarter of 2011, holders of the
4 percent Convertible Notes may convert them during the first quarter of 2012 at a conversion price of
approximately $11.11 per share of common stock. Between January 1, 2012 (the beginning of the first quarter)
and January 23, 2012, none of the 4 percent Convertible Notes were converted.
As of December 31, 2011, there were an aggregate of 1.0 million outstanding time and performance-based
restricted stock units which vest in 2012, 2013 and 2014, and there were 1.7 million shares available for grant of
stock and options under our 2010 Long Term Incentive Plan.
A summary of the transactions within the Company’s stock option plans follows (shares in thousands):
Shares
Weighted-Average
Exercise Price
Outstanding at January 1, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,341
910
—
(469)
$21.94
3.74
—
25.45
Outstanding at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,782
851
(196)
(84)
15.40
8.43
5.63
11.71
Outstanding at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,353
14.30
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
63
(1,831)
(49)
31.49
19.25
7.85
Outstanding at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,536
9.30
Exercisable at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,869
1,932
674
$21.03
$19.98
$10.14
80
As of December 31, 2011 (options in thousands):
Range of Exercise Prices
$ 0.01- 5.00
5.01-10.00
10.01-15.00
15.01-20.00
20.01-25.00
25.01-30.00
30.01-35.00
Options Outstanding
Weighted
Average
Amount
Remaining
Outstanding
Contractual Life
...........................
...........................
...........................
...........................
...........................
...........................
...........................
523
718
33
84
92
20
66
1,536
7.2
8.2
7.5
2.8
2.1
5.0
9.0
Weighted
Average
Exercise
Price
Options Exercisable
Weighted
Average
Amount
Exercise
Exercisable
Price
$ 3.40
8.38
11.44
17.91
21.93
25.68
31.64
272
184
19
84
92
20
3
$ 3.39
8.40
11.45
17.91
21.93
25.68
34.86
$ 9.30
674
$10.14
Stockholders’ Rights Plan. Our stockholders’ rights plan expired in accordance with its terms on
September 27, 2011. Our board of directors elected not to renew or extend the plan.
17.
Quarterly Financial Information (Unaudited)
First
Second Third Fourth
Quarter Quarter Quarter Quarter
For the year ended December 31, 2011 (1):
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 523 $ 629
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
138
211
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30
95
(Loss) income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . .
(20)
28
(Loss) earnings per share from continuing operations—basic . . . . . (0.34) 0.45
(Loss) earnings per share from continuing
operations—diluted (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.34) 0.38
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(20)
27
For the year ended December 31, 2010 (2):
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 478 $ 557
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
103
171
Operating (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2)
59
(Loss) income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . .
(40)
12
(Loss) earnings per share from continuing operations—basic . . . . . (0.67) 0.20
(Loss) earnings per share from continuing
operations—diluted (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.67) 0.18
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(40)
12
Full
Year
$ 713 $ 746 $2,611
274
275
898
156
115
396
65
28
101
1.04
0.45
1.62
0.91
65
0.39
29
1.38
101
$ 605 $ 597 $2,237
209
175
658
93
47
197
23
(17)
(22)
0.37 (0.29) (0.38)
0.33
23
(0.29) (0.38)
(21)
(26)
(1) During the fourth quarter of 2011, we recognized $19 of charges associated with the proposed RSC merger.
Additionally, during the quarter, we closed 18 branches and recognized restructuring charges of $14. During
the quarter, we also recognized asset impairment charges of $3 which are primarily reflected in non-rental
depreciation and amortization and principally relate to write-offs of leasehold improvements and other fixed
assets in connection with the consolidation of our branch network. In the quarter, we also purchased an
aggregate of $32 of QUIPS for $32. In connection with this transaction, we retired $32 principal amount of
our subordinated convertible debentures and recognized a loss of $1 in interest expense-subordinated
convertible debentures, net, inclusive of the write-off of capitalized debt issuance costs. Interest expense, net
for the fourth quarter of 2011 also includes a loss of $3 reflecting write-offs of debt issuance costs
associated with the amendment of our ABL facility discussed above. During the quarter, we also recognized
a benefit of $8 in cost of equipment rentals, excluding depreciation related to our provision for selfinsurance reserves.
81
(2) During the fourth quarter of 2010, we repurchased or redeemed and subsequently retired an aggregate of
$814 principal amount of our outstanding 7 3⁄ 4 percent Senior Subordinated Notes due 2013, 7 percent
Senior Subordinated Notes due 2014 and 1 7⁄ 8 percent Convertible Senior Subordinated Notes due 2023.
Interest expense, net for the fourth quarter of 2010 includes a charge of $25, representing the difference
between the net carrying amount of these securities and the total purchase price of $827. The $25 charge
includes a $4 write-off of a previously terminated derivative transaction. During the quarter, we also
recognized restructuring charges of $15 related to the closure of 22 branches and reductions in headcount of
approximately 100, and recognized asset impairment charges of $6. These asset impairment charges are
primarily reflected in non-rental depreciation and amortization and principally relate to write-offs of
leasehold improvement and other fixed assets in connection with the consolidation of our branch network.
Additionally, the income tax provision (benefit) for the quarter includes a benefit of $7 related to a
correction of a deferred tax asset recognized in prior periods. During the quarter, we also recognized a
charge of $24 related to our provision for self-insurance reserves, comprised of $18 recorded in cost of
equipment rentals, excluding depreciation, and $6 recorded in discontinued operation. The charge reflected
recent adverse experience in our portfolio of automobile and general liability claims, as well as worker’s
compensation claims. The discontinued operation component of the charge is reflected net of taxes in our
consolidated statements of income.
(3) Diluted earnings (loss) per share from continuing operations includes the after-tax impacts of the following:
For the year ended December 31, 2011:
RSC merger related costs (4) . . . . . . . . . . . . . . .
Restructuring charge (5) . . . . . . . . . . . . . . . . . . .
Losses on repurchase/retirement of debt
securities and subordinated convertible
debentures, and ABL amendment (6) . . . . . .
Asset impairment charge (7) . . . . . . . . . . . . . . .
For the year ended December 31, 2010:
Restructuring charge (5) . . . . . . . . . . . . . . . . . . .
(Losses) gains on repurchase/retirement of debt
securities (6) . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment charge (7) . . . . . . . . . . . . . . .
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Full
Year
$ —
(0.01)
$ —
(0.01)
$ —
(0.01)
$(0.25)
(0.12)
$(0.25)
(0.16)
(0.01)
—
—
(0.01)
—
—
(0.03)
(0.03)
(0.04)
(0.04)
$(0.06)
$(0.06)
$(0.06)
$(0.15)
$(0.34)
(0.04)
—
0.01
(0.02)
—
(0.01)
(0.24)
(0.06)
(0.28)
(0.09)
(4) This relates to transaction costs associated with the proposed RSC merger discussed above (see note 1
“Organization, Description of Business and Consolidation”).
(5) As discussed above (see note 5 “Restructuring and Asset Impairment Charges”), this relates to branch
closure charges and severance costs.
(6) As discussed above (see notes 12 “Debt” and 13 “Subordinated Convertible Debentures”), this reflects
(losses) gains on the repurchase/retirement of debt securities and subordinated convertible debentures, and
write-offs of debt issuance costs associated with the October 2011 amendment of our ABL facility.
(7) As discussed above (see note 5 “Restructuring and Asset Impairment Charges”), this non-cash charge
primarily reflects write-offs of leasehold improvements and other fixed assets.
18.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders
by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed by
dividing net income (loss) available to common stockholders by the weighted-average number of common shares
plus the effect of dilutive potential common shares outstanding during the period. There were no adjustments to
the 2010 and 2009 weighted-average number of common shares reflected in the diluted losses per share in the
table below due to the losses for the years ended December 31, 2010 and 2009. The diluted earnings (losses) per
share for the years ended December 31, 2011, 2010 and 2009 exclude the impact of approximately 2.2 million,
82
10.9 million and 11.8 million common stock equivalents, respectively, since the effect of including these
securities would be anti-dilutive. The following table sets forth the computation of basic and diluted loss per
share (shares in thousands):
Year Ended December 31,
2011
2010
2009
Numerator:
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible debt interest—1 7⁄ 8 percent notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Income (loss) from continuing operations available to common stockholders . . . .
Loss from discontinued operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101
—
Net income (loss) available to common stockholders . . . . . . . . . . . . . . . . . . . . . . .
101
—
$
101
Denominator:
Denominator for basic earnings (loss) per share—weighted-average common
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of dilutive securities:
Employee stock options and warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible subordinated notes—1 7⁄ 8 percent . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible subordinated notes—4 percent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62,184
1,037
1,015
8,532
581
Denominator for diluted earnings (loss) per share—adjusted weighted-average
common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73,349
Basic earnings (loss) per share:
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.62
Loss from discontinued operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
(22) $
—
(60)
—
(22)
(4)
(60)
(2)
(26) $
(62)
60,455
—
—
—
—
60,455
60,100
—
—
—
—
60,100
$ (0.38) $ (0.98)
(0.06)
(0.04)
$
1.62
$ (0.44) $ (1.02)
Diluted earnings (loss) per share:
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Loss from discontinued operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.38
—
$ (0.38) $ (0.98)
(0.06)
(0.04)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.38
$ (0.44) $ (1.02)
19.
$
Condensed Consolidating Financial Information of Guarantor Subsidiaries
URNA is 100 percent owned by Holdings (“Parent”) and has outstanding (i) certain indebtedness that is
guaranteed by Parent and (ii) certain indebtedness that is guaranteed by both Parent and, with the exception of its
U.S. special purpose entity (the “SPV”) which holds receivable assets relating to the Company’s accounts
receivable securitization, all of URNA’s U.S. subsidiaries (the “guarantor subsidiaries”). However, this
indebtedness is not guaranteed by URNA’s foreign subsidiaries and the SPV (together, the “non-guarantor
subsidiaries”). The guarantor subsidiaries are all 100 percent-owned and the guarantees are made on a joint and
several basis and are full and unconditional (subject to subordination provisions and subject to a standard
limitation which provides that the maximum amount guaranteed by each guarantor will not exceed the maximum
amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws). Separate
consolidated financial statements of the guarantor subsidiaries have not been presented because management
believes that such information would not be material to investors. However, condensed consolidating financial
information as of December 31, 2011 and 2010, and for each of the three years in the period ended
December 31, 2011, is presented. The condensed consolidating financial information of Parent and its
subsidiaries is as follows:
83
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2011
Non-Guarantor
Subsidiaries
Guarantor
Parent URNA Subsidiaries Foreign SPV Eliminations
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . .
Intercompany receivable (payable) . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . .
Rental equipment, net . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . .
Investments in subsidiaries . . . . . . . . . . . . . . . . . . . .
Goodwill and other intangibles, net . . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES AND STOCKHOLDERS’
EQUITY (DEFICIT)
Short-term debt and current maturities of long-term
debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated convertible debentures . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Temporary equity (note 12) . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity (deficit) . . . . . . . . . . . .
Total liabilities and stockholders’ equity
(deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$— $
6 $ —
—
19
9
114
(876)
772
—
21
15
—
55
1
—
100
3
114
(675)
800
—
1,345
836
41
177
120
227 2,144
462
—
130
102
4
60
1
$386 $3,181 $2,321
$ 30
98
(154)
8
19
1
2
436
28
—
140
—
$ 606
$129 $
8
—
120
31
139
160
267
—
2,444
55
—
16
241
52
2
283 2,954
39
—
64
227
$ —
47
48
95
142
—
165
2
404
—
1,917
$
$386 $3,181
$2,321
$ 606 $338
84
$—
338
—
—
—
—
338
—
—
—
—
—
$338
3 $255
39 —
45 —
87 255
6 —
—
—
48 —
3 —
144 255
—
—
462
83
Total
$
—
$ 36
—
464
144
—
—
44
—
75
—
104
144
723
—
2,617
—
366
(2,833)
—
—
372
—
65
$(2,689) $4,143
$
—
$ 395
—
206
—
263
—
864
—
2,592
—
55
—
470
—
59
—
4,040
—
39
(2,689)
64
$(2,689) $4,143
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2010
Parent URNA
Non-Guarantor
Subsidiaries
Guarantor
Subsidiaries Foreign SPV Eliminations
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $— $
4 $ —
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . —
5
6
Intercompany receivable (payable) . . . . . . . . . . . . . . 115 (837)
735
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
19
13
Prepaid expenses and other assets . . . . . . . . . . . . . . . —
31
4
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
65
3
$ 199
73
(155)
7
2
1
$—
293
—
—
—
—
761
127
293
1,243
186
2,018
99
60
742
136
414
83
—
295
28
—
45
—
—
—
—
—
—
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $339 $2,893
$2,136
$ 495 $293
$(2,463) $3,693
LIABILITIES AND STOCKHOLDERS’
(DEFICIT) EQUITY
Short-term debt and current maturities of long-term
debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $— $
8
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . —
83
Accrued expenses and other liabilities . . . . . . . . . . .
37
146
$ —
26
—
$ — $221
23 —
25 —
$
Total current assets . . . . . . . . . . . . . . . . . . . . .
115
Rental equipment, net . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . .
Investments in subsidiaries . . . . . . . . . . . . . . . . . . . .
Goodwill and other intangibles, net . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . .
—
43
173
—
8
(713)
$
Total
—
—
142
—
—
—
$ 203
377
—
39
37
69
142
725
—
—
(2,605)
—
—
2,280
393
—
227
68
—
—
—
$ 229
132
208
Total current liabilities . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated convertible debentures . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . .
37
124
124
17
57
237
2,306
—
175
2
26
146
—
160
—
48
—
—
33
—
221
—
—
—
—
—
—
—
—
—
569
2,576
124
385
59
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
359
2,720
332
81
221
—
3,713
Total stockholders’ (deficit) equity . . . . . . . . . . . .
(20)
173
1,804
414
72
(2,463)
Total liabilities and stockholders’ (deficit)
equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $339 $2,893
$2,136
85
$ 495 $293
(20)
$(2,463) $3,693
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
For the Year Ended December 31, 2011
Non-Guarantor
Subsidiaries
Guarantor
Parent URNA Subsidiaries Foreign SPV Eliminations
Revenues:
Equipment rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of rental equipment . . . . . . . . . . . . . . . . . . . . . . .
Sales of new equipment . . . . . . . . . . . . . . . . . . . . . . . .
Contractor supplies sales . . . . . . . . . . . . . . . . . . . . . . .
Service and other revenues . . . . . . . . . . . . . . . . . . . . . .
$— $1,037
—
117
—
38
—
37
—
43
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
$742
63
21
25
22
$372 $—
28 —
25 —
23 —
18 —
Total
$—
—
—
—
—
$2,151
208
84
85
83
1,272
873
466
—
—
2,611
—
—
—
—
—
—
479
220
80
30
26
19
352
137
44
17
17
7
161
66
18
20
15
5
—
—
—
—
—
—
—
—
—
—
—
—
992
423
142
67
58
31
Total cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . —
854
574
285
—
—
1,713
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Selling, general and administrative expenses . . . . . . . .
7
RSC merger related costs . . . . . . . . . . . . . . . . . . . . . . . —
Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . —
Non-rental depreciation and amortization . . . . . . . . . . 15
418
162
19
7
19
299
143
—
9
17
181
75
—
3
6
—
20
—
—
—
—
—
—
—
—
898
407
19
19
57
Operating (loss) income . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense (income), net . . . . . . . . . . . . . . . . . . .
Interest expense-subordinated convertible
debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense, net . . . . . . . . . . . . . . . . . . . . .
(22)
12
211
207
130
6
97
4
(20)
4
—
(5)
396
228
7
(73)
—
61
—
37
—
12
—
(40)
—
—
Income (loss) before provision (benefit) for income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . .
32
9
(57)
(4)
87
28
81
24
16
6
—
Income (loss) before equity in net earnings (loss) of
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23
(53)
59
57
10
Equity in net earnings (loss) of subsidiaries . . . . . . . .
78
131
62
78
$121
Cost of revenues:
Cost of equipment rentals, excluding depreciation . . .
Depreciation of rental equipment . . . . . . . . . . . . . . . . .
Cost of rental equipment sales . . . . . . . . . . . . . . . . . . .
Cost of new equipment sales . . . . . . . . . . . . . . . . . . . .
Cost of contractor supplies sales . . . . . . . . . . . . . . . . .
Cost of service and other revenues . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $101 $
86
—
—
$ 57 $ 10
7
(3)
5
5
(271)
$(266)
164
63
101
—
$ 101
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
For the Year Ended December 31, 2010
Non-Guarantor
Subsidiaries
Guarantor
Parent URNA Subsidiaries Foreign SPV Eliminations
Revenues:
Equipment rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of rental equipment . . . . . . . . . . . . . . . . . . . . . . .
Sales of new equipment . . . . . . . . . . . . . . . . . . . . . . . .
Contractor supplies sales . . . . . . . . . . . . . . . . . . . . . . .
Service and other revenues . . . . . . . . . . . . . . . . . . . . . .
$— $ 940
—
73
—
41
—
41
—
46
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
$629
48
18
30
23
$265 $—
23 —
19 —
24 —
17 —
Total
$—
—
—
—
—
$1,834
144
78
95
86
1,141
748
348
—
—
2,237
—
—
—
—
—
—
463
214
51
34
30
20
331
130
36
15
20
9
130
45
16
16
16
3
—
—
—
—
—
—
—
—
—
—
—
—
924
389
103
65
66
32
Total cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . —
812
541
226
—
—
1,579
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Selling, general and administrative expenses . . . . . . . . 21
Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . —
Non-rental depreciation and amortization . . . . . . . . . . 13
329
149
21
26
207
121
13
17
122
56
—
4
—
20
—
—
—
—
—
—
658
367
34
60
Operating (loss) income . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense-subordinated convertible
debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense, net . . . . . . . . . . . . . . . . . . . . .
(34)
12
133
237
56
6
(20)
4
—
(1)
197
255
8
(62)
—
54
—
28
—
12
—
(35)
—
—
8
3
(158)
(78)
22
7
53
22
11
5
—
Income (loss) from continuing operations . . . . . . . . . .
5
Loss from discontinued operation, net of taxes . . . . . . —
(80)
(4)
15
—
31
—
—
Income (loss) before equity in net (loss) earnings of
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in net (loss) earnings of subsidiaries . . . . . . . .
(84)
53
15
32
31
—
—
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (26) $ (31)
$ 47
Cost of revenues:
Cost of equipment rentals, excluding depreciation . . .
Depreciation of rental equipment . . . . . . . . . . . . . . . . .
Cost of rental equipment sales . . . . . . . . . . . . . . . . . . .
Cost of new equipment sales . . . . . . . . . . . . . . . . . . . .
Cost of contractor supplies sales . . . . . . . . . . . . . . . . .
Cost of service and other revenues . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before
provision (benefit) for income taxes . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . .
5
(31)
87
62
(3)
$ 31 $
1
6
6
6
1
8
(3)
(63)
(41)
—
(22)
(4)
1
(54)
(26)
—
$ (53)
$ (26)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
For the Year Ended December 31, 2009
Non-Guarantor
Subsidiaries
Guarantor
Parent URNA Subsidiaries Foreign SPV Eliminations
Revenues:
Equipment rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of rental equipment . . . . . . . . . . . . . . . . . . . . . . .
Sales of new equipment . . . . . . . . . . . . . . . . . . . . . . . .
Contractor supplies sales . . . . . . . . . . . . . . . . . . . . . . .
Service and other revenues . . . . . . . . . . . . . . . . . . . . . .
$— $ 957
—
131
—
44
—
49
—
51
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
$645
69
26
47
28
$228 $—
29 —
16 —
25 —
13 —
Total
$—
—
—
—
—
$1,830
229
86
121
92
1,232
815
311
—
—
2,358
—
—
—
—
—
—
469
231
132
38
36
21
329
139
65
22
36
10
112
47
25
13
17
6
—
—
—
—
—
—
—
—
—
—
—
—
910
417
222
73
89
37
Total cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . —
927
601
220
—
—
1,748
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Selling, general and administrative expenses . . . . . . . . 19
Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . —
Non-rental depreciation and amortization . . . . . . . . . . 12
305
175
12
18
214
144
17
23
91
51
2
4
—
19
—
—
—
—
—
—
610
408
31
57
Operating (loss) income . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense-subordinated convertible debentures,
net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense, net . . . . . . . . . . . . . . . . . . . . .
(31)
40
100
176
30
6
34
—
(19)
4
—
—
114
226
(4)
(66)
—
50
—
45
—
8
—
(38)
—
—
(4)
(1)
(Loss) income from continuing operations before
(benefit) provision for income taxes . . . . . . . . . . . .
(1)
(Benefit) provision for income taxes . . . . . . . . . . . . . . —
(126)
(51)
(21)
(9)
26
7
15
6
—
—
(107)
(47)
(Loss) income from continuing operations . . . . . . . . .
(1)
Loss from discontinued operation, net of taxes . . . . . . —
(75)
(2)
(12)
—
19
—
9
—
—
—
(60)
(2)
(Loss) income before equity in net (loss) earnings of
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in net (loss) earnings of subsidiaries . . . . . . . .
(77)
16
(12)
—
19
—
9
—
—
45
(62)
—
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (62) $ (61)
$ (12)
9
$ 45
$ (62)
Cost of revenues:
Cost of equipment rentals, excluding depreciation . . .
Depreciation of rental equipment . . . . . . . . . . . . . . . . .
Cost of rental equipment sales . . . . . . . . . . . . . . . . . . .
Cost of new equipment sales . . . . . . . . . . . . . . . . . . . .
Cost of contractor supplies sales . . . . . . . . . . . . . . . . .
Cost of service and other revenues . . . . . . . . . . . . . . . .
(1)
(61)
88
$ 19 $
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Year Ended December 31, 2011
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . .
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign exchange rates . . . . . . . . .
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of
period . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of
period . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Guarantor
Subsidiaries
Foreign
SPV
Parent
URNA
Guarantor
Subsidiaries
$—
(13)
$ 276
(311)
$ 236
(241)
13
—
37
—
—
(11)
6
36
—
—
—
80
6
—
2
—
(169)
—
—
(167)
—
4
—
199
—
—
203
6
$—
$ 30
$—
$—
$ 36
$—
$
5
$ 132 $ (36)
(296) —
Eliminations
$—
—
Total
$ 608
(861)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Year Ended December 31, 2010
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . .
Net cash (used in) provided by financing
activities . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign exchange rates . . . . . . . . . .
Net (decrease) increase in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of
period . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of
period . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Parent
URNA
Guarantor
Subsidiaries
$ 14
(13)
$ 304
(78)
$ 77
(82)
(1)
—
(227)
—
2
—
Non-Guarantor
Subsidiaries
Foreign
SPV
$ 82 $ (25)
(50) —
Eliminations
Total
$—
—
$ 452
(223)
(2)
8
25
—
—
—
(203)
8
—
(1)
(3)
38
—
—
34
—
5
3
161
—
—
169
$199
$—
$—
$ 203
$—
$
89
4
$—
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Year Ended December 31, 2009
Net cash provided by operating
activities . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by investing
activities . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by financing
activities . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign exchange rate . . . . . . . . .
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of
period . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of
period . . . . . . . . . . . . . . . . . . . . . . . . . . .
Parent
URNA
Guarantor
Subsidiaries
$ 26
$ 180
$ 22
Non-Guarantor
Subsidiaries
Foreign
SPV
$ 70
Eliminations
$ 140
$—
Total
$ 438
(23)
(50)
(26)
5
—
—
(94)
(3)
—
(125)
—
3
—
(3)
16
(140)
—
—
—
(268)
16
(1)
88
—
—
92
4
73
—
—
77
3
$161
$—
$—
$ 169
—
5
—
$—
—
$
5
90
$
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
UNITED RENTALS, INC.
(In millions)
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Year ended December 31, 2011:
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for obsolescence and shrinkage . . . . . . . . . . . . . . . . . . . . .
Self-insurance reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$29
1
93
$21
5
65
$ 17(a)
4(b)
75(c)
$33
2
83
Year ended December 31, 2010:
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for obsolescence and shrinkage . . . . . . . . . . . . . . . . . . . . .
Self-insurance reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$25
1
83
$21
6
94
$ 17(a)
6(b)
84(c)
$29
1
93
Year ended December 31, 2009:
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for obsolescence and shrinkage . . . . . . . . . . . . . . . . . . . . .
Self-insurance reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$23
1
86
$16
7
99
$ 14(a)
7(b)
102(c)
$25
1
83
Description
Deductions
Balance
at End
of Period
The above information reflects the continuing operations of the Company for the periods presented.
Additionally, because the Company has retained certain self-insurance liabilities associated with the
discontinued traffic control business, those amounts have been included as well.
(a) Represents write-offs of accounts, net of recoveries.
(b) Represents write-offs.
(c) Represents payments.
91
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules and forms, and that such information is
accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
The Company’s management carried out an evaluation, under the supervision and with participation of our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures, as defined in Rules 13a–15(e) and 15d–15(e) of the Exchange Act, as of December 31, 2011. Based
on the evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s
disclosure controls and procedures were effective as of December 31, 2011.
Management’s Annual Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act. The Company’s
internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
GAAP. The Company’s internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and
expenditures of the Company are being made only in accordance with authorizations of management and
directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Under the supervision of our Chief Executive Officer and Chief Financial Officer, our management assessed
the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011. In making
this assessment, management used the criteria set forth in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, our
management has concluded that the Company’s internal control over financial reporting was effective as of
December 31, 2011.
The Company’s financial statements included in this annual report on Form 10-K have been audited by
Ernst & Young LLP, independent registered public accounting firm, as indicated in the following report. Ernst &
Young LLP has also provided an attestation report on the Company’s internal control over financial reporting.
92
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of United Rentals, Inc.
We have audited United Rentals, Inc.’s internal control over financial reporting as of December 31, 2011,
based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). United Rentals, Inc.’s management is
responsible for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Annual
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, United Rentals, Inc. maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2011, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of United Rentals, Inc. as of December 31, 2011 and 2010, and
the related consolidated statements of income, stockholders’ equity (deficit), and cash flows for each of the three
years in the period ended December 31, 2011 of United Rentals, Inc. and our report dated January 25, 2012
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
New York, New York
January 25, 2012
93
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended
December 31, 2011 that materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other Information
Not applicable.
94
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
The information required by this Item is incorporated by reference to the applicable information in our
Proxy Statement related to the 2012 Annual Meeting of Stockholders (the “2012 Proxy Statement”), which will
be filed with the SEC on or before April 27, 2012.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference to the applicable information in the 2012
Proxy Statement, which will be filed with the SEC on or before April 27, 2012.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this Item is incorporated by reference to the applicable information in the 2012
Proxy Statement, which will be filed with the SEC on or before April 27, 2012.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated by reference to the applicable information in the 2012
Proxy Statement, which will be filed with the SEC on or before April 27, 2012.
Item 14. Principal Accountant Fees and Services
The information required by this Item is incorporated by reference to the applicable information in the 2012
Proxy Statement, which will be filed with the SEC on or before April 27, 2012.
95
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Documents filed as a part of this report
(1) Consolidated financial statements:
Report of Independent Registered Public Accounting Firm on Financial Statements
United Rentals, Inc. Consolidated Balance Sheets—December 31, 2011 and 2010
United Rentals, Inc. Consolidated Statements of Income for the years ended December 31, 2011, 2010 and 2009
United Rentals, Inc. Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31,
2011, 2010 and 2009
United Rentals, Inc. Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and
2009
Notes to consolidated financial statements
(2) Schedules to the financial statements:
Schedule II Valuation and Qualifying Accounts
Schedules other than those listed are omitted as they are not applicable or the required or equivalent information
has been included in the financial statements or notes thereto.
(3) Exhibits: The exhibits to this report are listed in the exhibit index below.
(b) Description of exhibits
Exhibit
Number
Description of Exhibit
2(a)
Agreement and Plan of Merger, dated as of December 15, 2011, by and between United Rentals,
Inc. and RSC Holdings Inc. (incorporated by reference to Exhibit 2.1 of the United Rentals, Inc.
Report on Form 8-K filed on December 21, 2011)
3(a)
Restated Certificate of Incorporation of United Rentals, Inc., dated March 16, 2009 (incorporated by
reference to Exhibit 3.1 of the United Rentals, Inc. Report on Form 8-K filed on March 17, 2009)
3(b)
By-laws of United Rentals, Inc., amended as of December 20, 2010 (incorporated by reference to
Exhibit 3.1 of the United Rentals, Inc. Report on Form 8-K filed on December 23, 2010)
3(c)
Amended and Restated Certificate of Incorporation of United Rentals (North America), Inc.
(incorporated by reference to Exhibit 3.3 of the United Rentals (North America), Inc. Report on
Form 10-Q for the quarter ended June 30, 1998)
3(d)
By-laws of United Rentals (North America), Inc. (incorporated by reference to Exhibit 3.4 of the
United Rentals (North America), Inc. Report on Form 10-Q for the quarter ended June 30, 1998)
4(a)
Form of Certificate representing United Rentals, Inc. Common Stock (incorporated by reference to
Exhibit 4 of Amendment No. 2 to the United Rentals, Inc. Registration Statement on Form S-l,
Registration No. 333-39117, filed on December 3, 1997)
4(b)
Rights Agreement, dated September 28, 2001, between United Rentals, Inc. and American Stock
Transfer & Trust Co., as Rights Agent (incorporated by reference to Exhibit 4 of the United Rentals,
Inc. Report on Form 8-K filed on October 5, 2001)
4(c)
First Amendment, dated as of July 22, 2007, to the Rights Agreement, dated September 28, 2001,
between United Rentals, Inc. and American Stock Transfer & Trust Company (incorporated by
reference to Exhibit 4.1 of the United Rentals, Inc. Report on Form 8-K filed on July 24, 2007)
96
Exhibit
Number
Description of Exhibit
4(d)
Second Amendment, dated as of October 16, 2008 to the Rights Agreement, dated September 28,
2001, between United Rentals, Inc. and American Stock Transfer & Trust Company (incorporated
by reference to Exhibit 4.1 of the United Rentals, Inc. Report on Form 8-K filed on October 17,
2008)
4(e)
Form of Certificate of Designation for Series E Junior Participating Preferred Stock (incorporated
by reference to Exhibit A of Exhibit 4 of the United Rentals, Inc. Report on Form 8-K filed on
October 5, 2001)
4(f)
Certificate of Trust of United Rentals Trust I (incorporated by reference to Exhibit 4(a) of the
United Rentals, Inc. Registration Statement on Form S-l, Registration No. 333-64463, filed on
September 28, 1998)
4(g)
Amended and Restated Trust Agreement, dated August 5, 1998, relating to United Rentals Trust I,
among United Rentals, Inc., The Bank of New York, as Property Trustee, The Bank of New York
(Delaware), as Delaware Trustee, and the Administrative Trustees named therein (incorporated by
reference to Exhibit 10(ii) of the United Rentals, Inc. Registration Statement on Form S-4,
Registration No. 333-63171, filed on September 10, 1998)
4(h)
Form of Certificate representing 6 1⁄ 2 percent Convertible Quarterly Income Preferred Securities
(“QUIPs”) (incorporated by reference to Exhibit 4(e) of the United Rentals, Inc. Registration
Statement on Form S-l, Registration No. 333-64463, filed on September 28, 1998)
4(i)
Indenture, dated August 5, 1998, relating to 6 1⁄ 2 percent Convertible Subordinated Debentures,
between United Rentals, Inc. and The Bank of New York, as Trustee (incorporated by reference to
Exhibit 10(hh) of the United Rentals, Inc. Registration Statement on Form S-4, Registration
No. 333-63171, filed on September 10, 1998)
4(j)
Form of Certificate representing 6 1⁄ 2 percent Convertible Subordinated Debentures (incorporated by
reference to Exhibit 4(f) of the United Rentals, Inc. Registration Statement on Form S-l,
Registration No. 333-64463, filed on September 28, 1998)
4(k)
Guarantee Agreement, dated August 5, 1998, between United Rentals, Inc. and The Bank of New
York (incorporated by reference to Exhibit 10(jj) of the United Rentals, Inc. Registration Statement
on Form S-4, Registration No. 333-63171, filed on September 10, 1998)
4(l)
Supplement, dated as of September 19, 2005, relating to the QUIPs (incorporated by reference to
Exhibit 4.5 of the United Rentals, Inc. Report on Form 8-K filed on September 23, 2005)
4(m)
Indenture, dated as of October 31, 2003, relating to 1 7⁄ 8 percent Convertible Senior Subordinated
Notes due 2023, among United Rentals (North America), Inc., United Rentals, Inc., as Guarantor,
and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4(a) of the United
Rentals, Inc. Report on Form 10-Q for the quarter ended September 30, 2003)
4(n)
Supplemental Indenture, dated as of September 19, 2005, relating to 1 7⁄ 8 percent Convertible Senior
Subordinated Notes due 2023 (incorporated by reference to Exhibit 4.4 of the United Rentals, Inc.
Report on Form 8-K filed on September 23, 2005)
4(o)
Form of 1 7⁄ 8 percent Convertible Senior Subordinated Notes due 2023 (incorporated by reference to
Section 2.02 of Exhibit 4(a) of the United Rentals, Inc. Report on Form 10-Q for the quarter ended
September 30, 2003)
4(p)
Indenture, dated as of November 12, 2003, relating to 7 3⁄ 4 percent Senior Subordinated Notes due
2013, among United Rentals (North America), Inc., the Guarantors named therein and The Bank of
New York, as Trustee (incorporated by reference to Exhibit 4(b) of the United Rentals, Inc. Report
on Form 10-Q for the quarter ended September 30, 2003)
97
Exhibit
Number
Description of Exhibit
4(q)
Supplemental Indenture, dated as of September 19, 2005, relating to 7 3⁄ 4 percent Senior
Subordinated Notes due 2013 (incorporated by reference to Exhibit 4.2 of the United Rentals, Inc.
Report on Form 8-K filed on September 23, 2005)
4(r)
Form of 7 3⁄ 4 percent Senior Subordinated Notes due 2013 (incorporated by reference to Exhibits A1 and A-2 of Exhibit 4(b) of the United Rentals, Inc. Report on Form 10-Q for the quarter ended
September 30, 2003)
4(s)
Indenture, dated as of January 28, 2004, relating to 7 percent Senior Subordinated Notes due 2014,
among United Rentals (North America), Inc., the Guarantors named therein and The Bank of New
York, as Trustee (incorporated by reference to Exhibit 4.1 of the United Rentals, Inc. Report on
Form 8-K filed on February 23, 2004)
4(t)
Supplemental Indenture, dated as of September 19, 2005, relating to 7 percent Senior Subordinated
Notes due 2014 (incorporated by reference to Exhibit 4.3 of the United Rentals, Inc. Report on
Form 8-K filed on September 23, 2005)
4(u)
Form of 7 percent Senior Subordinated Notes due 2014 (incorporated by reference to Exhibits A-1
and A-2 of Exhibit 4.1 of the United Rentals, Inc. Report on Form 8-K filed on February 23, 2004)
4(v)
Indenture, dated as of February 17, 2004, relating to 6 1⁄ 2 percent Senior Notes due 2012, among
United Rentals (North America), Inc., the Guarantors named therein and The Bank of New York, as
Trustee (incorporated by reference to Exhibit 4.2 of the United Rentals, Inc. Report on Form 8-K
filed on February 23, 2004)
4(w)
Supplemental Indenture, dated as of September 19, 2005, relating to 6 1⁄ 2 percent Senior Notes due
2012 (incorporated by reference to Exhibit 4.1 of the United Rentals, Inc. Report on Form 8-K filed
on September 23, 2005)
4(x)
Form of 6 1⁄ 2 percent Senior Notes due 2012 (incorporated by reference to Exhibits A-1 and A-2 of
Exhibit 4.2 of the United Rentals, Inc. Report on Form 8-K filed on February 23, 2004)
4(y)
Indenture, dated as of June 9, 2009, relating to 10 7⁄ 8 percent Senior Notes due 2016, among United
Rentals (North America), Inc., United Rentals, Inc., the Subsidiaries named in Schedule A and The
Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 of the United
Rentals, Inc. Report on Form 8-K filed on June 12, 2009)
4(z)
Form of 10 7⁄ 8 percent Senior Notes due 2016 (incorporated by reference to Exhibits A-1 and A-2 of
Exhibit 4.1 of the United Rentals, Inc. Report on Form 8-K filed on June 12, 2009)
4(aa)
Indenture, dated as of November 17, 2009, relating to 4 percent Convertible Senior Notes due 2015,
between United Rentals, Inc. and The Bank of New York Mellon, as Trustee (incorporated by
reference to Exhibit 4.1 of the United Rentals, Inc. Report on Form 8-K filed on November 17,
2009)
4(bb)
Form of 4 percent Convertible Senior Notes due 2015 (incorporated by reference to Exhibit A of
Exhibit 4.1 of the United Rentals, Inc. Report on Form 8-K filed on November 17, 2009)
4(cc)
Indenture, dated as of November 17, 2009, relating to 9 1⁄ 4 percent Senior Notes due 2019, among
United Rentals (North America), Inc., United Rentals, Inc., United Rentals (North America), Inc.’s
subsidiaries named therein and The Bank of New York Mellon, as Trustee (incorporated by
reference to Exhibit 4.2 of the United Rentals, Inc. Report on Form 8-K filed on November 17,
2009)
4(dd)
Form of 9 1⁄ 4 percent Senior Notes due 2019 (incorporated by reference to Exhibit A of Exhibit 4.2
of the United Rentals, Inc. Report on Form 8-K filed on November 17, 2009)
98
Exhibit
Number
Description of Exhibit
4(ee)
Indenture, dated as of October 26, 2010, relating to 8 3⁄ 8 percent Senior Subordinated Notes due
2020, among United Rentals (North America), Inc., United Rentals, Inc., United Rentals (North
America), Inc.’s subsidiaries named therein and The Bank of New York Mellon, as Trustee
(incorporated by reference to Exhibit 4.1 of the United Rentals, Inc. Report on Form 8-K filed on
October 26, 2010)
4(ff)
Supplemental Indenture, dated as of December 1, 2010, relating to 8 3⁄ 8 percent Senior Subordinated
Notes due 2020 (incorporated by reference to Exhibit 4(ff) of the United Rentals, Inc. Annual
Report on Form 10-K for the year ended December 31, 2010)
4(gg)
Form of 8 3⁄ 8 percent Senior Subordinated Notes due 2020 (incorporated by reference to Exhibit A
of Exhibit 4.1 of the United Rentals, Inc. Report on Form 8-K filed on October 26, 2010)
10(a)
1997 Stock Option Plan of United Rentals, Inc. (incorporated by reference to Exhibit 10(b) of the
United Rentals, Inc. Registration Statement on Form S-l, Registration No. 333-39117, filed on
October 30, 1997)‡
10(b)
1998 Supplemental Stock Option Plan of United Rentals, Inc., as amended and restated
(incorporated by reference to Exhibit 10(h) of the United Rentals, Inc. Report on Form 10-K for the
year ended December 31, 2005)‡
10(c)
2001 Stock Plan of United Rentals, Inc. (incorporated by reference to Exhibit 4.6 of the United
Rentals, Inc. Registration Statement on Form S-8, No. 333-60458 filed on May 8, 2001)‡
10(d)
2001 Comprehensive Stock Plan of United Rentals, Inc. (formerly the 2001 Senior Stock Plan)
(incorporated by reference to Exhibit 10(f) of the United Rentals, Inc. Report on Form 10-Q for the
quarter ended June 30, 2006)‡
10(e)
United Rentals, Inc. Deferred Compensation Plan, as amended and restated, effective December 16,
2008 (incorporated by reference to Exhibit 10.1 of the United Rentals, Inc. Report on Form 8-K
filed on December 19, 2008)‡
10(f)
Amendment Number One to the United Rentals, Inc. Deferred Compensation Plan, as amended and
restated, effective December 16, 2008 (incorporated by reference to Exhibit 10(f) of the United
Rentals, Inc. Annual Report on Form 10-K for the year ended December 31, 2010)‡
10(g)
United Rentals, Inc. Deferred Compensation Plan for Directors, as amended and restated, effective
December 16, 2008 (incorporated by reference to Exhibit 10.2 of the United Rentals, Inc. Report on
Form 8-K filed on December 19, 2008)‡
10(h)
Amendment Number One to the United Rentals, Inc. Deferred Compensation Plan for Directors, as
amended and restated, effective December 16, 2008‡ (incorporated by reference to Exhibit 10(h) of
the United Rentals, Inc. Annual Report on Form 10-K for the year ended December 31, 2010)‡
10(i)
United Rentals, Inc. Annual Incentive Compensation Plan, as amended and restated, effective
December 16, 2008 (incorporated by reference to Exhibit 10.4 of the United Rentals, Inc. Report on
Form 8-K filed on December 19, 2008)‡
10(j)
Amendment Number One to the United Rentals, Inc. Annual Incentive Compensation Plan, as
amended and restated, effective December 16, 2008 (incorporated by reference to Exhibit 10(j) of
the United Rentals, Inc. Annual Report on Form 10-K for the year ended December 31, 2010)‡
10(k)
United Rentals, Inc. 2009 Annual Incentive Compensation Plan, effective for bonuses granted for
the 2009 fiscal year (incorporated by reference to Annex A of the United Rentals, Inc. Proxy
Statement on Schedule 14A filed on April 30, 2009)‡
99
Exhibit
Number
Description of Exhibit
10(l)
United Rentals, Inc. Long-Term Incentive Plan, as amended and restated, effective December 16,
2008 (incorporated by reference to Exhibit 10.5 of the United Rentals, Inc. Report on Form 8-K
filed on December 19, 2008)‡
10(m)
United Rentals, Inc. 2010 Long-Term Incentive Plan (incorporated by reference to Appendix A of
the United Rentals, Inc. Proxy Statement on Schedule 14A filed on March 31, 2010)‡
10(n)
Form of United Rentals, Inc. 2010 Long-Term Incentive Plan Director Restricted Stock Unit
Agreement (incorporated by reference to Exhibit 10(b) of the United Rentals, Inc. Report on
Form 10-Q for the quarter ended June 30, 2010)‡
10(o)
Form of United Rentals, Inc. 2010 Long Term Incentive Plan Restricted Stock Unit Agreement
(Performance-Based) (incorporated by reference to Exhibit 10(a) of the United Rentals, Inc. Report
on Form 10-Q for the quarter ended March 31, 2011)‡
10(p)
United Rentals, Inc. Restricted Stock Unit Deferral Plan, as amended and restated, effective
December 16, 2008 (incorporated by reference to Exhibit 10.3 of the United Rentals, Inc. Report on
Form 8-K filed on December 19, 2008)‡
10(q)
Amendment Number One to the United Rentals, Inc. Restricted Stock Unit Deferral Plan, as
amended and restated, effective December 16, 2008‡ (incorporated by reference to Exhibit 10(p) of
the United Rentals, Inc. Annual Report on Form 10-K for the year ended December 31, 2010)‡
10(r)
Form of United Rentals, Inc. Restricted Stock Unit Agreement for Senior Management
(incorporated by reference to Exhibit 10(b) of the United Rentals, Inc. Report on Form 10-Q for the
quarter ended June 30, 2006)‡
10(s)
Form of United Rentals, Inc. Restricted Stock Unit Agreement for Senior Management, effective
for grants of awards beginning in 2009 (incorporated by reference to Exhibit 10.3 of the United
Rentals, Inc. Report on Form 10-Q for the quarter ended June 30, 2009)‡
10(t)
Form of United Rentals, Inc., Restricted Stock Unit Agreement for Senior Management, effective
for grants of awards beginning in 2010 (incorporated by reference to Exhibit 10(e) of the United
Rentals, Inc. Report on Form 10-Q for the quarter ended March 31, 2010)‡
10(u)
Form of United Rentals, Inc. Restricted Stock Unit Agreement for Non-Employee Directors
(incorporated by reference to Exhibit 10(c) of the United Rentals, Inc. Report on Form 10-Q for the
quarter ended June 30, 2006)‡
10(v)
Form of United Rentals, Inc. 2010 Long Term Incentive Plan Restricted Stock Unit Agreement
(Performance-Based) (incorporated by reference to Exhibit 10(a) of the United Rentals, Inc. Report
on Form 10-Q for the quarter ended March 31, 2011)‡
10(w)
Form of United Rentals, Inc. Stock Option Agreement for Senior Management (incorporated by
reference to Exhibit 10.4 of the United Rentals, Inc. Report on Form 10-Q for the quarter ended
June 30, 2009)‡
10(x)
Form of United Rentals, Inc. Stock Option Agreement for Senior Management, effective for grants
of awards beginning in 2010 (incorporated by reference to Exhibit 10(d) of the United Rentals, Inc.
Report on Form 10-Q for the quarter ended March 31, 2010)‡
10(y)
Form of Directors Option Agreement of United Rentals, Inc. (incorporated by reference to
Exhibit 99.1 of the United Rentals, Inc. Report on Form 8-K filed on March 8, 2005)‡
100
Exhibit
Number
Description of Exhibit
10(z)
Board of Directors compensatory plans, as described under the caption “Director Compensation” in
the United Rentals, Inc. definitive proxy statement to be filed with the Securities and Exchange
Commission (in connection with the Annual Meeting of Stockholders) on or before April 27, 2012,
are hereby incorporated by reference.
10(aa)
Employment Agreement, dated as of August 22, 2008, between United Rentals, Inc. and Michael J.
Kneeland (incorporated by reference to Exhibit 10.1 of the United Rentals, Inc. Report on Form 8-K
filed on August 25, 2008)‡
10(bb)
First (renumbered Second) Amendment, dated January 15, 2009, to the Employment Agreement
between United Rentals, Inc. and Michael J. Kneeland (incorporated by reference to Exhibit 10.1 of
the United Rentals, Inc. Report on Form 8-K filed on January 15, 2009)‡***
10(cc)
Third Amendment, dated March 13, 2009, to the Employment Agreement between United Rentals,
Inc. and Michael J. Kneeland (incorporated by reference to Exhibit 10.1 of the United Rentals, Inc.
Report on Form 8-K filed on March 17, 2009)‡
10(dd)
Fourth Amendment, effective as of August 22, 2008, to the Employment Agreement between
United Rentals, Inc. and Michael J. Kneeland (incorporated by reference to Exhibit 10(dd) of the
United Rentals, Inc. Annual Report on Form 10-K for the year ended December 31, 2010)‡
10(ee)
Form of 2001 Comprehensive Stock Plan Restricted Stock Unit Agreement with Michael J.
Kneeland (incorporated by reference to Exhibit 10.2 of the United Rentals, Inc. Report on Form 8-K
filed on August 25, 2008)‡
10(ff)
Employment Agreement, dated as of December 1, 2008, between United Rentals, Inc. and William
B. Plummer (including Restricted Stock Unit Agreement) (incorporated by reference to Exhibit 10.1
of the United Rentals, Inc. Report on Form 8-K filed on November 25, 2008)‡
10(gg)
Second Amendment, effective as of December 1, 2008, to the Employment Agreement between
United Rentals, Inc. and William B. Plummer (incorporated by reference to Exhibit 10(gg) of the
United Rentals, Inc. Annual Report on Form 10-K for the year ended December 31, 2010)‡
10(hh)*
Third Amendment, dated as of December 22, 2011, to the Employment Agreement between United
Rentals, Inc. and William B. Plummer‡
10(ii)
Employment Agreement, dated August 30, 2006, between United Rentals, Inc. and John Fahey
(incorporated by reference to Exhibit 10.2 of the United Rentals, Inc. Report on Form 8-K filed on
September 1, 2006)‡
10(jj)
First Amendment, effective as of August 30, 2006, to the Employment Agreement between United
Rentals, Inc. and John Fahey (incorporated by reference to Exhibit 10(ii) of the United Rentals, Inc.
Annual Report on Form 10-K for the year ended December 31, 2010)‡
10(kk)
Employment Agreement, last dated September 3, 2008, between United Rentals, Inc. and Ken
DeWitt (incorporated by reference to Exhibit 10(f) of the United Rentals, Inc. Report on Form 10-Q
for the quarter ended March 31, 2009)‡
10(ll)
First Amendment, effective as of September 3, 2008, to the Employment Agreement between
United Rentals, Inc. and Ken DeWitt (incorporated by reference to Exhibit 10(kk) of the United
Rentals, Inc. Annual Report on Form 10-K for the year ended December 31, 2010)‡
10(mm)* Severance Agreement and General Release, effective as of December 7, 2011, between United
Rentals, Inc. and Ken DeWitt‡
101
Exhibit
Number
Description of Exhibit
10(nn)
Employment Agreement, dated as of February 2, 2009, between United Rentals, Inc. and Jonathan
Gottsegen (incorporated by reference to Exhibit 10(gg) of the United Rentals, Inc. Report on
Form 10-K for the year ended December 31, 2008)‡
10(oo)
First Amendment, dated as of March 31, 2010, to the Employment Agreement between United
Rentals, Inc. and Jonathan Gottsegen (incorporated by reference to Exhibit 10(c) of the United
Rentals, Inc. Report on Form 10-Q for the quarter ended March 31, 2010)‡
10(pp)
Second Amendment, effective as of February 2, 2009, to the Employment Agreement between
United Rentals, Inc. and Jonathan Gottsegen (incorporated by reference to Exhibit 10(nn) of the
United Rentals, Inc. Annual Report on Form 10-K for the year ended December 31, 2010)‡
10(qq)
Employment Agreement, dated as of May 11, 2008, between United Rentals, Inc. and Joseph Dixon
(incorporated by reference to Exhibit 10(a) of the United Rentals, Inc. Report on Form 10-Q for the
quarter ended March 31, 2010)‡
10(rr)
First Amendment, effective as of May 11, 2008, to the Employment Agreement between United
Rentals, Inc. and Joseph Dixon (incorporated by reference to Exhibit 10(pp) of the United Rentals,
Inc. Annual Report on Form 10-K for the year ended December 31, 2010)‡
10(ss)
Employment Agreement, dated as of March 12, 2010, between United Rentals, Inc. and
Matthew Flannery (incorporated by reference to Exhibit 10(b) of the United Rentals, Inc. Report on
Form 10-Q for the quarter ended March 31, 2010)‡
10(tt)
First Amendment, effective as of March 12, 2010, to the Employment Agreement between United
Rentals, Inc. and Matthew Flannery (incorporated by reference to Exhibit 10(rr) of the United
Rentals, Inc. Annual Report on Form 10-K for the year ended December 31, 2010)‡
10(uu)
First Amendment, dated April 28, 2008, to the Employment Agreement between United Rentals,
Inc. and Dale Asplund (incorporated by reference to Exhibit 10(b) of the United Rentals, Inc.
Report on Form 10-Q for the quarter ended March 31, 2011)‡
10(vv)
Form of Amendment to Executive Officer Employment Agreement (incorporated by reference to
Exhibit 10.6 of the United Rentals, Inc. Report on Form 8-K filed on December 19, 2008)‡
10(ww)
Form of Indemnification Agreement for executive officers and directors (incorporated by reference
to Exhibit 10(gg) of the United Rentals, Inc. Report on Form 10-K for the year ended December 31,
2009)‡
10(xx)
Amended and Restated Credit Agreement, dated October 14, 2011, by and among United Rentals,
Inc., United Rentals (North America), Inc., certain subsidiaries of United Rentals, Inc. and United
Rentals (North America), Inc., United Rentals of Canada, Inc., United Rentals Financing Limited
Partnership, Bank of America N.A., Wells Fargo Capital Finance, LLC, Citigroup Global Markets
Inc., Morgan Stanley Senior Funding, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and
the other financial institutions named therein (incorporated by reference to Exhibit 10.1 of the
United Rentals, Inc. Report on Form 8-K filed on October 17, 2011)
10(yy)
Amendment No. 1 to Amended and Restated Credit Agreement, dated as of December 16, 2011, to
that certain Amended and Restated Credit Agreement, dated as of October 14, 2011, by and among
United Rentals, Inc., United Rentals (North America), Inc., certain subsidiaries of United Rentals,
Inc. and United Rentals (North America), Inc., United Rentals of Canada, Inc., United Rentals
Financing Limited Partnership, the financial institutions party thereto from time to time (the
“Lenders”), Bank of America N.A., as agent for the Lenders, and the other parties thereto
(incorporated by reference to Exhibit 10.1 of the United Rentals, Inc. Report on Form 8-K filed on
December 29, 2011).
102
Exhibit
Number
Description of Exhibit
10(zz)
Amended and Restated U.S. Security Agreement, dated October 14, 2011, by and among United
Rentals, Inc., United Rentals (North America), Inc., certain subsidiaries of United Rentals, Inc. and
United Rentals (North America), Inc. and Bank of America, N.A., as agent (incorporated by
reference to Exhibit 10.2 of the United Rentals, Inc. Report on Form 8-K filed on October 17, 2011)
10(aaa)
Amended and Restated U.S. Intellectual Property Security Agreement, dated October 14, 2011, by
and among United Rentals, Inc., United Rentals (North America), Inc., certain subsidiaries of
United Rentals, Inc. and United Rentals (North America), Inc. and Bank of America, N.A., as agent
(incorporated by reference to Exhibit 10.3 of the United Rentals, Inc. Report on Form 8-K filed on
October 17, 2011)
10(bbb)
Amended and Restated U.S. Guarantee Agreement, dated October 14, 2011, by and among United
Rentals Inc., United Rentals (North America), Inc., certain subsidiaries of United Rentals, Inc. and
United Rentals (North America), Inc. named or referred to therein and Bank of America, N.A., as
agent (incorporated by reference to Exhibit 10.4 of the United Rentals, Inc. Report on Form 8-K
filed on October 17, 2011)
10(ccc)
Amended and Restated Canadian Security Agreement, dated October 14, 2011, by and among
United Rentals, Inc., United Rentals (North America), Inc., certain subsidiaries of United Rentals,
Inc. and United Rentals (North America), Inc., United Rentals of Canada, Inc., United Rentals
Financing Limited Partnership and Bank of America, N.A., as agent (incorporated by reference to
Exhibit 10.5 of the United Rentals, Inc. Report on Form 8-K filed on October 17, 2011)
10(ddd)
Amended and Restated Canadian URFLP Guarantee, dated October 14, 2011, by United Rentals of
Nova Scotia (No. 1), ULC and United Rentals of Nova Scotia (No. 2), ULC (incorporated by
reference to Exhibit 10.6 of the United Rentals, Inc. Report on Form 8-K filed on October 17, 2011)
10(eee)
Amended and Restated Canadian Guarantee, dated October 14, 2011, by United Rentals, Inc.,
United Rentals (North America), Inc. and certain subsidiaries of United Rentals, Inc. and United
Rentals (North America), Inc. named therein (incorporated by reference to Exhibit 10.7 of the
United Rentals, Inc. Report on Form 8-K filed on October 17, 2011)
10(fff)
Second Amended and Restated Receivables Purchase Agreement, dated as of September 28, 2011,
by and among Credit Agricole Corporate and Investment Bank, The Bank of Nova Scotia, Atlantic
Asset Securitization LLC, Liberty Street Funding LLC, United Rentals Receivables LLC II and
United Rentals, Inc. (without Annexes) (incorporated by reference to Exhibit 10.2 of the United
Rentals, Inc. Report on Form 8-K filed on October 4, 2011)
10(ggg)
Second Amended and Restated Purchase and Contribution Agreement, dated as of September 28,
2011, by and among United Rentals Receivables LLC II, United Rentals, Inc., United Rentals
(North America), Inc. and United Rentals Northwest, Inc. (without Annexes) (incorporated by
reference to Exhibit 10.1 of the United Rentals, Inc. Report on Form 8-K filed on October 4, 2011)
10(hhh)
Performance Undertaking, dated as of May 31, 2005, executed by United Rentals, Inc. in favor of
United Rentals Receivables LLC II (incorporated by reference to Exhibit 99.3 of the United
Rentals, Inc. Report on Form 8-K filed on June 6, 2005)
10(iii)
Confirmation of Performance Undertaking, dated as of December 22, 2008, executed by United
Rentals, Inc. in favor of United Rentals Receivables LLC II (incorporated by reference to
Exhibit 10(xx) of the United Rentals, Inc. Report on Form 10-K for the year ended December 31,
2008)
103
Exhibit
Number
Description of Exhibit
10(jjj)
Master Exchange Agreement, dated as of January 1, 2009, among United Rentals Exchange, LLC,
IPX1031 LLC, United Rentals (North America), Inc. and United Rentals Northwest, Inc.
(incorporated by reference to Exhibit 10.3 of the United Rentals, Inc. Report on Form 8-K filed on
January 7, 2009)
10(kkk)
Form of Capped Call Confirmation, dated as of November 10, 2009, between United Rentals, Inc.
and each of Bank of America, N.A., Citibank, N.A., Wachovia Bank, National Association and
Morgan Stanley & Co. International plc (incorporated by reference to Exhibit 10.1 of the United
Rentals, Inc. Report on Form 8-K filed on November 17, 2009)‡‡
10(lll)
Voting Agreement, dated as of December 15, 2011, by and between United Rentals, Inc. and OHCP
II RSC, LLC, OHCMP II RSC, LLC and OHCP II RSC COI, LLC (incorporated by reference to
Exhibit 10.1 of the United Rentals, Inc. Report on Form 8-K filed on December 21, 2011)
10(mmm) Commitment Letter, dated as of December 15, 2011, among United Rentals, Inc., Morgan Stanley
Senior Funding, Inc., Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
WF Investment Holdings, LLC, Wells Fargo Securities, LLC and Wells Fargo Capital Finance,
LLC (incorporated by reference to Exhibit 10.2 of the United Rentals, Inc. Report on Form 8-K
filed on December 21, 2011)
12*
Computation of Ratio of Earnings to Fixed Charges
21*
Subsidiaries of United Rentals, Inc.
23*
Consent of Ernst & Young LLP
31(a)*
Rule 13a-14(a) Certification by Chief Executive Officer
31(b)*
Rule 13a-14(a) Certification by Chief Financial Officer
32(a)**
Section 1350 Certification by Chief Executive Officer
32(b)**
Section 1350 Certification by Chief Financial Officer
101****
*
**
***
‡
‡‡
****
Interactive Data File
Filed herewith.
Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K under the Exchange
Act.
The First Amendment to Mr. Kneeland’s Employment Agreement corresponds to Exhibit 10(vv).
This document is a management contract or compensatory plan or arrangement required to be filed as an
exhibit to this form pursuant to Item 15(a) of this report.
The Company also entered into a Form of Additional Capped Call Option, dated November 13, 2009 with
each of Bank of America, N.A., Citibank, N.A., Wachovia Bank, National Association and Morgan
Stanley & Co. International plc which is substantially identical to Exhibit 10(kkk) and is incorporated
herein by reference.
XBRL Interactive Data File will be filed by amendment to this Annual Report on Form 10-K within 30
days of the filing date of this Annual Report on Form 10-K, as permitted by Rule 405(a)(2) of Regulation
S-T.
104
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: January 24, 2012
UNITED RENTALS, INC.
By: /s/ MICHAEL J. KNEELAND
Chief Executive Officer
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated:
/S/
Signatures
Title
Date
JENNE K. BRITELL
Chairman
January 24, 2012
Director
January 24, 2012
Director
January 24, 2012
Director
January 24, 2012
Director
January 24, 2012
Director
January 24, 2012
Director
January 24, 2012
Director
January 24, 2012
Director
January 24, 2012
Director
January 24, 2012
Director and Chief Executive Officer
(Principal Executive Officer)
January 24, 2012
Chief Financial Officer (Principal
Financial Officer)
January 24, 2012
Vice President, Controller (Principal
Accounting Officer)
January 24, 2012
Jenne K. Britell
/S/
JOSÉ B. ALVAREZ
José B. Alvarez
/S/
HOWARD L. CLARK
Howard L. Clark
/S/
BOBBY J. GRIFFIN
Bobby J. Griffin
/S/
SINGLETON B. MCALLISTER
Singleton B. McAllister
/S/
BRIAN D. MCAULEY
Brian D. McAuley
/S/
JOHN S. MCKINNEY
John S. McKinney
/S/
JASON D. PAPASTAVROU
Jason D. Papastavrou
/S/
FILIPPO PASSERINI
Filippo Passerini
/S/
L. “KEITH” WIMBUSH
L. “Keith” Wimbush
/S/
MICHAEL J. KNEELAND
Michael J. Kneeland
/S/
WILLIAM B. PLUMMER
William B. Plummer
/S/
JOHN J. FAHEY
John J. Fahey
105
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CORPORATE INFORMATION
INVESTOR INFORMATION
STOCKHOLDER INFORMATION
For investor information,
including our 2011 Form 10-K,
our quarterly earnings releases
and our other Securities
Exchange Act reports, please
visit our website:
For stockholder services
24 hours a day:
Call toll-free
(800) 937-5449
in the United States
and Canada, or
(718) 921-8200.
unitedrentals.com
Investment professionals
may contact:
Fred Bratman
(203) 618-7318
[email protected]
2012 ANNUAL MEETING
Friday, June 8, 2012
at 9:00 am Eastern Time.
Hyatt Regency Greenwich
1800 East Putnam Avenue
Old Greenwich, CT 06870
E-mail:
[email protected]
To speak to a stockholder
services representative,
please call between 9:00 am and
5:00 pm Eastern Time, Monday
through Friday.
• Account information
• Transfer requirements
• Lost certificates
• Change of address
• Tax forms
Write:
American Stock Transfer &
Trust Company
59 Maiden Lane
New York, NY 10038
By overnight mail only:
American Stock Transfer &
Trust Company
6201 15th Avenue
Brooklyn, NY 11219
(718) 921-8210
www.amstock.com
UNITED RENTALS STOCK LISTING
United Rentals common stock is listed on the New York Stock Exchange
under the symbol “URI.” The common stock is included in the
Standard & Poor’s MidCap 400 Index and the Russell 2000 Index®.
The following table sets forth, for the periods indicated, the intra-day
high and low sale prices and close prices for our common stock, as
reported by the New York Stock Exchange.
UNITED RENTALS COMMON STOCK PRICES
2011
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
High
Low
Close
$33.63
22.66
33.28
$34.78
22.13
25.40
$27.21
12.81
16.84
$30.73
15.14
29.55
$10.13
6.87
9.38
$14.79
9.26
9.32
$15.41
8.20
14.84
$23.69
14.46
22.75
$9.50
2.52
4.21
$6.90
3.99
6.49
$11.32
5.19
10.30
$11.53
8.61
9.81
2010
High
Low
Close
2009
High
Low
Close
As of January 1, 2012, there were approximately 89 holders
of record of our common stock. We believe that the number of
beneficial owners is substantially greater than the number of record
holders because a large portion of our common stock is held of record
in broker “street names.”
We have not paid dividends on our common stock since inception.
However, the payment of any future dividends will be determined by
our Board of Directors in light of conditions then existing. The terms
of certain of our indebtedness contain certain limitations on our
ability to pay dividends.
CORPORATE HEADQUARTERS
United Rentals, Inc.
Five Greenwich Office Park
Greenwich, CT 06831
Phone: (203) 622-3131
Fax: (203) 622-6080
unitedrentals.com
INDEPENDENT AUDITORS
Ernst & Young LLP
5 Times Square
New York, NY 10036
(212) 773-3000
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DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
CORPORATE VICE PRESIDENTS
REGIONAL VICE PRESIDENTS
Jenne K . Britell, Ph.D., Chairman
Senior Managing Director
Brock Capital Group LLC
Michael J. Kneeland
President and
Chief Executive Officer
Raymond J. Alletto
Vice President –
Risk Management
Chris A. Burlog
Vice President –
Central North Region
José B. Alvarez (1, 4)
Senior Lecturer
Harvard Business School
William B. Plummer
Executive Vice President
and Chief Financial Officer
Christopher M. Brown
Vice President –
Assistant Controller
Scott Fisher
Vice President –
Northwest Region
Howard L. Clark, Jr.
Director
Matthew J. Flannery
Executive Vice President and
Chief Operating Officer
John L. Bureau
Vice President –
Wynne Systems
Randal L. Hajner
Vice President –
Southeast Region
Jonathan M. Gottsegen
Senior Vice President,
General Counsel and
Corporate Secretary
Gregg L. Christensen
Vice President –
Sales Force Effectiveness
David A. Hobbs
Vice President –
South Region
Joli L. Gross
Vice President –
Deputy General Counsel
and Assistant Secretary
Thomas P. Jones
Vice President –
Mid-Atlantic Region
Bobby J. Griffin (1, 3, 5)
Director
Michael J. Kneeland
President and
Chief Executive Officer
United Rentals, Inc.
(5)
Dale A. Asplund
Senior Vice President –
Business Services and
Chief Information Officer
Pierre E. Leroy (2, 5)
Executive Chairman
Vigilant Video, Inc.
Singleton B. McAllister (2, 4)
Partner
Blank Rome LLP
John J. Fahey
Vice President –
Controller and Principal
Accounting Officer
Brian D. McAuley (3, 4, 5)
Chairman
Pacific DataVision, Inc.
SENIOR VICE PRESIDENTS
John S. McKinney (1, 3)
Director
Fred B. Bratman
Senior Vice President –
Corporate Communications
and Investor Relations
James H. Ozanne
Director
(4, 5)
Jason D. Papastavrou, Ph.D.
Founder and
Chief Executive Officer
ARIS Capital Management
(1, 3)
Filippo Passerini
President
Global Business Services, and
Chief Information Officer
The Procter & Gamble Company
(2, 3, 5)
Donald C. Roof (1, 3)
Director
L. Keith Wimbush (2, 4)
Executive Vice President and
North American Head of Legal
DHR International, Inc.
Juan P. Corsillo
Senior Vice President –
Sales and Marketing
Joseph A. Dixon
Senior Vice President –
Field Sales
David G. Ledlow
Senior Vice President –
Operations
Paul I. McDonnell
Senior Vice President –
Operations, Trench Safety,
Power and HVAC
Daniel T. Higgins
Vice President –
IT Infrastructure and Operations
Tony S. Leopold
Vice President –
Integration and Innovation
Patrick W. Lowry
Vice President –
Tool Division
Gordon McDonald
Vice President –
Managed Services
Eric D. Mertz
Vice President –
Internal Audit
Frank R. Roth
Vice President –
Marketing
Robert P. Krause
Vice President –
Mountain West Region
Brent Kuchynka
Vice President –
Southwest Region
Donald C. Matter
Vice President –
Industrial Region
Kevin M. O’Brien
Vice President –
Central South Region
Kevin C. Parr
Vice President –
Northeast Region
Tony Plescia
Vice President –
Eastern Canada Region
Timothy S. Rule
Vice President –
Northwest Region
Mark L. Tapia
Vice President –
Gulf South Region
Kenneth B. Mettel
Senior Vice President –
Strategy and Planning
Irene Moshouris
Senior Vice President –
Treasurer
COMMITTEES OF THE BOARD
(1) Audit Committee
John S. McKinney, Chair
(2) Compensation Committee
Singleton B. McAllister, Chair
(3) Risk Management Committee
Jason D. Papastavrou, Chair
(4) Nominating and Corporate
Governance Committee
Brian D. McAuley, Chair
(5) Strategy Committee
Bobby J. Griffin, Chair
Craig A. Pintoff
Senior Vice President –
Human Resources
The United Rentals name and logo are registered trademarks
of United Rentals, Inc. and its affiliates. All rights reserved. All
other trademarks, service marks and brand names that appear
in this document are the property of their respective owners.
The covers and narrative portions of this
annual report are printed on papers
containing 10% post-consumer fiber.
The 10K is printed on paper containing
30% post-consumer recycled fiber.
The equipment rental leader
Total 2011 revenues: $2.6 billion
Market coverage: more than 970 rental branches
Customers: Primarily construction and industrial
companies and utilities
Employees: Approximately 12,000
Rental fleet original cost: $7.0 billion
Rental range: Approximately 3,900 equipment classes
Revenues as of December 31, 2011. Other data are estimates reflecting merger.
UNITED RENTALS, INC.
Five Greenwich Office Park
Greenwich, CT 06831
unitedrentals.com